[GreenQuest Lawn]

Ok I need some advise. I have a business partner, we are about to dissolve the partnership and I need to come up with a value of the company.

It seemed easy at first but then when I got to thinking I was kind of lost.

I know I need the value of all equipment, That is the easy part.....well maybe easy...

Do I add in the value of the entire contract? Or the remaining value (they have paid 4 of 8 months so far) all contracts expire in Nov so I have no long-term contracts.

I would assume any leases would not be considered value, as they are just an expense.

What about debt, (loans, Credit card, etc) is that subtracted from the value?

I guess what I am getting at is how do I go about this. I want to come up with the right value, as he will most certainly want a percentage for the buy out. Of course I also do not want to figure the value higher than it should be. I know there are many more questions I was going to type but for now I would like to hear some opinions from all of you. Thanks!

[Stonehenge]

Hmmm....

First off, I should say congrats for buying out your partner. IMHO that is always the best way to go.

But to the topic at hand - y'know, I swear I just read an article about this somewhere.

Hah! Found it. An Article from Inc magazine, July 2003. The cover says "What your company is worth now - 12 tools to appraise any business." Here's a link to the online version: http://www.inc.com/magazine/20030701/25661.html

But it doesn't contain the graph, which is probably the most telling.

In general, in the construction industry, a company's selling price is about 1/3-1/4 it's annual revenues. So if a builder is taking in gross revenues of 2.1M, his company should sell for around $700K.

As far as the nitty gritty for you, I don't believe you should be giving full credit for any service contracts through the end of the year - there is the time value of money to consider, and that contracted amount is a gross amount, not net. He shouldn't be paid from gross dollars. He should be paid from net. So his fraction of your gross that would represent your net profit (less taxes, G&A, etc) should be what he gets for that, less a few bucks for getting money now that you have yet to actually earn and be paid.

Re: rent or leases - that's a liability!! You should in no way be paying him for renting space or leasing equipment - you have contracted with someone to use that equipment for a fee. His half of that lease charge should be deducted from what you pay him. Same with any other financial commitments you have (credit card debt, bills not yet paid).

If you both use an accountant, you might want to talk to that person, and your attorney as well.

[GreenQuest Lawn]

Thanks for the quick response. I will talk to my accountant as well.

To give some light on our "partnership" He is NOT an equal partner. in fact I would not even consider him a 10% partner. When I started this business he loaned me the start up cash. Notice I did say loan, he was paid in full plus interest. He also got me a few meetings with potential customers (he was in the abrasive business so these were customers of his) thats pretty much it, he gave a few things of no major value to the company, I also was able to use a part of his warehouse for my equipment till he sold his business. Of course in my favor he received free lawn care/ snowplowing at both his house and business.

I am good friends with him (my wife worked for him) so I do not think he wants much, then again he is not entitled to much. There was never a partnership agreement and he never received any pay from the company. We agreed that before he made any money that I would be paying myself 30% more than I was making at the Lawn Care I worked for for 6 years. That never happened, Of course the company made WAY more but after expenses, etc I did not pay myself much so there was never the "extra" income for him.

This whole thing irritates me, he sold his 250,000 house and moved to Las Vegas where I am sure he bought a house at least that much and he is worried about the value of my 3 year old one man band......

Oh well I lived I learned, and I will have all this fixed soon.....

[Stonehenge]

Did he work with you? I mean, side by side, on the job?

If not, from what you lay out here, I'm not sure that there's anything that you'd owe him, strictly from a gentleman's agreement point of view. You got some free stuff, he got some free stuff, none of it major.

From a contractual point of view, I'd say that position is reinforced.

[GreenQuest Lawn]

Originally posted by Stonehenge
Did he work with you? I mean, side by side, on the job?

If not, from what you lay out here, I'm not sure that there's anything that you'd owe him, strictly from a gentleman's agreement point of view. You got some free stuff, he got some free stuff, none of it major.

From a contractual point of view, I'd say that position is reinforced.

I would have to agree with you on that.

He did not work for the company, (I sure did not want that)

Like I said he also did not recieve any income except for the interest on the money lent.

I could handle the 1/4 - 1/3 then figure in his 1-10% share of that just to get it done with quicker. I have kept the business small cause I knew he would want a buyout. Like wise all vehicles are leases and all equipment is 3 years old.

I really do not know what % we will agree on but I do not think it should be any more than 10% after all he was a 1% partner.

[BRL]

That's a really funny smilie!

It sounds like there is really no partnership, so what is there to pay out? It sounds like he is just checking if the biz is worth anything now before he just says good bye? Maybe if he sees the actual Net with his own eyes, he would not even ask anything of you, but he wouldn't want to leave with money on the table either? Just some thoughts that came to mind from some of your comments and the situation as it sounds.

Either way, in case someone reads this thread who is considering a partnership, I think everyone agrees that an exit plan should be put in writing before getting started. This thread is a good example of why many people give that advise. Good luck with the "break up".

[GreenQuest Lawn]

Ok I will pull up this thread to give a final update.

After trying to agree on a dollar amount that we would both accept we could not agree so we ended up getting third party advice and some suggestions. I also came to the realization that my partner would use any resource and even spend loads of cash fighting this to end up at his advantage.


So anyway He asked for roughly 35% of the value of the company. I had offered 15%.

So the agreement we (actually the third party came up with it) came up with was this:

In calendar year 2004 I will pay 17%

At the end of 2004 we will get the gross sales number.
*If 2004 gross sales are higher than 2003 I will pay another 8.5%
*If 2004 gross sales are less than 2003 I will pay nothing

At the end of 2005 again we will get gross sales number and the same applies
*If 2005 gross sales are more than 2003 I will pay another 8.5%
*If 2005 gross sales are less than 2003 I will pay nothing.

So each year is in itself a separate agreement, there is no carry over, so if company does not grow I get away with only paying the 17%. My gross income this year looks to be higher than I thought and a lot higher than previous years, although I do feel I am at my limit being a one-man company. Which may be an advantage to me as far as the buy-out.

It is time for me to move on and forget about all of this, I have stressed out enough over it. This method still makes me deal with him for three more years but only once a year will I have to talk to him. Heck I may just have the accountant deal with him to let him know if we need to pay the additional dollar amounts.

I will, of course, have EVERYTHING done through a lawyer, I made a huge mistake when I started the business but in my defense I did not know of these lawn forums before I stared. Had I known I would have sought legal advise then.


On a positive note, by the end of the year the business will be all mine!