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James Millar
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k1k1, post: 246388, member: 93830 wrote:
I am currently very confused and dont know which direction to take.

I currently am part owner (25%) of an original partnership (optometry practice) that I bought into.
Here’s a brief rundown on history.

2013-2014: Partner A B C start new business together. They each own 33.3%. Low entry cost (unsure of amount). Partner A and B are father/son. This was started just to test the waters to see i it was viable. It makes a 200K turnover and it makes a $45K loss this first year. (due to equipment and stock purchase).

2014-2015: I begin working there as a contractor (mainly doing all the work) and start to build the business. Turnover increases to 210K . Net profit is $2700 this year.

2015-2016: I join the partnership with a 25% share as partner D. Partner A B C are silent partners. I buy my 25% share at $30K and pay $10 K (total 40K) to pay off the approx $40K debt. There is now no debt in the partnership. (dumb idea when I look back as this debt should of been shared) . Our turnover has increased to $278K and net profit $18k

Its now 2016-2017 and we are looking to turnover about $300K with an approximate profit of $20K. I am still paying myself a rate before profits as I have partners.

I can now see that going forwards, the potential pitfalls of this partnership. I am doing 90% of the work while my 3 partners do not do anything (they have also never received any decent return on their initial investment). If I was them I could have made a much better return with the capital. If we start to make much more profit in the future I can see there being issues I am not sure if I should sell my share back to them and work as a contractor again or buy them all out. I had previously offered to buy partner A and B but they wont budge. using an ROI of 6 (already VERY healthy) I value the practice at 120K but I know they want much more. They will only sell if it is much more than it’s value. What is the max I should pay?

I have also been offered a new business opportunity elsewhere but that is still also quite risky so I am holding back on that. I will either have to own 0% of the old business or 100% of the old business to do this.

Unfortunately there is no easy way around this. You’ve made the mistake of creating value BEFORE considering the maths and having the right agreement in place. Not surprisingly those other partners see it as a gravy train.

Where did those buy in numbers come from? What were your advisers saying about it before you invested? A cautionary tale.

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900