BUY/SELL OR SHOTGUN

Ed Katz in the beginning…

When looking back over my 40+ years of owning my own companies, I’m shocked at how naïve (and stupid) I was, especially in the beginning of my business career.  One of the dumbest decisions I ever made was to start my moving company in 1976 with a 50/50 (coequal) business partner without a buy/sell agreement. In my mind, the arrangement was a perfect match, since my partner and I were close friends, and he was smart, honest, and a good person.

My next mistake was to assume that my partner would be there on a regular basis and step in to help whenever I needed him. Since I was the operating partner, we agreed that I would take a salary of $10,000 per year—my partner would not take a salary. However, we both would share equally in the net income.

I soon found myself working 12 hours a day, 7 days a week, especially on holidays (when we did our largest office moves). If you read any of my earlier blogs or articles, you know I suffered daily through terrible trials and tribulations.  I needed help running the business, but my business partner was MIA—he was always traveling out of town, hunting new deals for himself.

By 1980, I just couldn’t take it anymore. I was still averaging 80 hours a week—running the company by myself without any help from my partner—yet splitting every dollar of profit.  As much as I liked him, I finally realized our arrangement was inequitable and to me, the only fix was for me to buy him out of the business.

He was blindsided, shocked, and angered with my proposal and refused to sell.  My personal attorney told me “we” had made a huge mistake when we formed our partnership. To save money on the front end (and because we were such good friends), we never signed a buy/sell agreement that would have enabled either of us to buy out the other.

My only option was to use a shotgun—figuratively speaking, or course.  With the shotgun method, I gave my partner the following ultimatum, “Either you buy me out or I’ll buy you out for $90,000—either way, we’re no longer going to remain partners!”  My offer was good for only one week.  On the 8th day without a response from him, I made him another shotgun offer for $5,000 less than the first.  (Without a deal, my plan was to lower the offer by $5,000 each successive week.)  Finally, at the end of the third week, he accepted my offer of $80,000.

The cost of the buyout was a lot more than $80,000, though.  My legal fees were astronomical, and my former partner and friend never forgave me—to this day. I lost a dear friend for life. What’s the takeaway from this?  Do not form a partnership without clearly defined roles and expectations and absolutely do not form any business relationship without a buy/sell agreement. It doesn’t have to be complicated but it must provide a buy/sell structure that’s relatively painless to execute.  Think of the agreement as a premarital or prenuptial contract between business partners. It also covers the death of a co-owner and can be funded with a life insurance policy.

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For more information on our online office moving training, please visit

http://www.officemoves.com/training/index.html or call Ed Katz at 404.358.2172.

 

By | 2018-06-25T13:13:38+00:00 June 7th, 2018|Uncategorized|