You’re a partner in a small business, and your partner wants to sell his or her share of the company.
You have a choice: You can buy them out or let them go on their own.
In this article, we’ll discuss some things you should think about if you’re considering buying out your business partner.
Talk with a lawyer
Make sure you consult a lawyer. A lawyer can help you understand the legal process and its tax implications, as well as the financial implications of buying out a partner.
Decide if you have enough money to buy out your partner
The first thing you need to do is decide if you have enough money to buy out your partner. If the business is a profitable one and it’s clear that it will continue to grow, then this shouldn’t be much of an issue.
Just keep in mind that buying out a partner can cost anywhere from 50% – 70% of the company’s value, depending on how well they’re doing and how long they’ve been involved with it.
If you don’t have enough cash to purchase all your shares right away, don’t despair! There are other options available:
- Online loans for small businesses can be used as capital while working towards purchasing their share of the company. As per the experts at Lantern by SoFi, “If you’re finding it hard to qualify because you own a brand new business, don’t fret. There are business loans made specifically for startups.”
- If there are investors on board already (which may or may not include your former partner), talk with them about investing more money into expansion
Consider SBA loans or bank financing
If you don’t have the cash to buy out your partner, it may be wise to consider SBA loans or bank financing.
What is an SBA loan? The Small Business Administration (SBA) provides loans and guarantees to help small businesses get back on their feet after a natural disaster or other business interruption.
Entrepreneurs can apply for up to $5 million in long-term fixed-rate loans, which can go toward buying out a partner and keeping them invested in the company.
Get a business valuation of your company
A business valuation is a professional opinion of the value of your company at a certain point in time. You’ll want to get one before you start negotiating with your partner or partners so that you have something objective to use as a starting point for negotiations.
You can hire an appraiser who specializes in valuing small businesses or someone from the bank where you do business. The bank will likely be willing to help out if they’re considering lending money for the buyout, but otherwise, there are plenty of other options available online—just search “business valuation” on Google and see what comes up.
Buying out your business partner can be a stressful and difficult process. However, it’s important to remember that there are resources available to help you through the process, including a lawyer and financial institution. The key is to know what kind of loan you need before talking with lenders and banks about their options for financing your purchase.