10 Tips to Conduct a Successful Partnership Buyout

Chris,

My business partner and I can no longer work together. I want to buy him out, but I’m afraid the process of negotiating the deal will not go well. Do you have any tips for negotiating a partnership buyout?

Certainly! But First…

Before I offer you my tips on conducting the buyout negotiations with your partner, let me offer a big piece of advice. Use a Mediator. I say that because there is a LOT of emotion around buyouts. It is an extremely personal and emotional process. People always underestimate just how emotional separating from a business is.

Your first offer is likely to trigger your partner in ways you don’t expect. They will be offended with your offer no matter how generous you think you’re being. Why? You are trying to buy something that is a big part of your partner’s identity. If you start negotiations and hit a wall, it will be far harder to get unstuck and return to the table. It will probably cost you more money too.

Please, if it’s time to talk buyout, talk with me.

Okay, I promised you those tips!

1. Open Communication Lines

Establish clear and open lines of communication with your business partner. Ensure that both parties are aware of the intentions and motivations behind the buyout. Transparency is crucial to build trust and maintain a productive negotiation process.

2. Define Objectives

Clearly articulate your objectives and goals for the buyout. Define what you want to achieve and how it aligns with your partner’s expectations. Ask your partner to express their objectives and goals. This will help you both stay focused during negotiations and find common ground.

Expect that there will be a gap in your positions. It’s normal. Your partner will be wounded that you want to get them out of the business. Your first offer is going to be rejected. This is the emotional spark that lights the fire. Take it easy and discuss the goals you each put forward.

Remember! Never, ever, ever, ever make ultimatums. Ultimatums destroy any opportunities to reach common ground.

3. Valuation and Due Diligence

Determine the value of the business or shares being bought out. Conduct a thorough evaluation of the company’s assets, liabilities, financials, and any potential risks. Seek professional assistance from accountants, lawyers, or business valuators to ensure an accurate valuation.

4. Seek Win-Win Positions

Look for mutually beneficial solutions that address the interests and concerns of both parties. A successful negotiation is not about winning at the expense of your partner but rather finding a fair resolution that satisfies both parties. I am a big believer in Game Theory. That means look for all the benefits to your partner as you negotiate and NEVER be surprised when he acts in his own interest. Seek to understand your partner’s position.

5. Explore Payment Options

Discuss and agree on the payment terms for the buyout. Consider options such as lump-sum payments, installments, or other creative financing methods. Ensure that the payment structure is viable for both parties and aligns with the business’s financial capabilities.

Remember too that there are other options for money payments. For example, you might supply your partner with 1099 work. Perhaps your partner is a great designer. You could offer her the design work for a year at an agreed rate. There are lots of possibilities here.

6. Non-Financial Terms

Besides financial aspects, consider non-financial terms, such as the treatment of employees, intellectual property rights, non-compete agreements, and ongoing involvement in the business. These terms can significantly impact the success of the buyout and the transition period.

I’ve seen people argue over the use of pictures on the website and the use of marketing materials created when the partnership was in a good place. Often, partners will agree on a price only to have the deal implode over the little stuff that must be decided. Again, that’s where a Mediator will help you.

7. Seek Professional Advice

Engage legal and financial experts experienced in buyouts to guide you through the process. They can provide valuable insights, protect your interests, and help you navigate complex legal and financial matters. Again, a good Mediator will help you understand when to call the accountant or lawyer.

Did you know you can legally backdate your deal to simplify accounting? A deal signed in June can be backdated to December to help keep the books simple for the current year. There are some rules around backdating but it is perfectly legal.

8. Prepare for Negotiation Points

Anticipate potential sticking points or areas of disagreement and develop strategies to address them. This includes determining your walk-away points, identifying potential compromises, and understanding your partner’s priorities and concerns. This is the heart of Game Theory. UNDERSTAND THE OTHER SIDE AS BEST YOU CAN.

9. Document the Agreement

Once you reach an agreement, ensure that it is properly documented and legally binding. This may involve drafting a buyout agreement, shareholder agreement, or other legal documents. Consult with a lawyer to ensure that all necessary paperwork is completed correctly. 

10. Maintain Professionalism

Throughout the negotiation process, maintain a professional and respectful attitude. Emotions can run high during buyout negotiations, but it is essential to approach the discussions with a calm and rational mindset. Remember that the ultimate goal is to reach a fair and mutually beneficial resolution. I recommend you have short, frequent meetings. 

It’s never a good idea to expect everything will be worked out in a single, long, stressful meeting. Talk, accomplish something, walk away, and come back to the table later. It’s a myth that people will agree if you wear them down. As people get tired, their barriers come up. That’s when arguments start. BE PATIENT.

Remember that each buyout situation is unique, and it’s crucial to tailor your approach to the specific circumstances. By following these tips and seeking professional guidance, you can increase your chances of negotiating a successful buyout with your business partner.

Chris Reich, Business Partnership Mediator

“Remember! Never, ever, ever, ever make ultimatums. Ultimatums destroy any opportunities to reach common ground.​”
—Chris Reich, Business Partnership Mediator