Small Business Advice - Partners with Differing Views
Discussion
I will try to keep it breif and factual.
Small private healthcare business, two partners, both working in the business and taking a wage. Both great friends and no animosity, the business is going well and both are happy with things.
Everything is 50/50 but both partners keep 100% of the profit from the patients they see directly(thus they can and do earn differently, depending on the clinic hours they do in person). 2 employees who also see patients - the profits from these are split 50/50 between the partners.
Partner 1 - 40's, keen to grow the business and has driven much of the expansion in the last 2-3 years by employing people and increasing opening hours.
Partner 2 - 60's, looking towards retirment, winding down, working less hours in person.
The opportunity to move the business to a new premises has become available; this would allow 2 or potentially 3 clinics to run at one time (currently only 1 room available to use at any time).
The rent is very competitive however it is likely to require an investment of around £20k to fit out the new building ready for use. Plus the overlap in rent whilst this work is done and other assocated moving costs.
Partner 1 is very keen and sees it as the natural next step for the business - the customer base is there, they are maxing out the current clinic room.
Partner 2 is not so keen to invest the money and time at this stage in their working life. Partner 2 has mentioned retiring next year(but not committed to anything).
Partner 1 understands and accepts this but wonders if there a structure in which they can push on with the move with Partner 2 remaining involved at their current level; but when they retire, this move and any subsequent investment and reward is solely that of Partner 1?
How could that look? Is there a common way of doing this in business?
Realistic risk of Partner 2 feeling left out - Partner 1 calling more of the shots as the new premises is 'theirs', dynamic of the partnership changing dramatically. Employees no longer knowing who the boss is etc...
The terms of the exit of Partner 2 when they retire is also unclear at this stage - whether they become a silent partner and take some % of profit each year, or whether Partner 1 buys them out in full etc... All TBC.
Any experience or advice welcome, thank you as always PH.
Small private healthcare business, two partners, both working in the business and taking a wage. Both great friends and no animosity, the business is going well and both are happy with things.
Everything is 50/50 but both partners keep 100% of the profit from the patients they see directly(thus they can and do earn differently, depending on the clinic hours they do in person). 2 employees who also see patients - the profits from these are split 50/50 between the partners.
Partner 1 - 40's, keen to grow the business and has driven much of the expansion in the last 2-3 years by employing people and increasing opening hours.
Partner 2 - 60's, looking towards retirment, winding down, working less hours in person.
The opportunity to move the business to a new premises has become available; this would allow 2 or potentially 3 clinics to run at one time (currently only 1 room available to use at any time).
The rent is very competitive however it is likely to require an investment of around £20k to fit out the new building ready for use. Plus the overlap in rent whilst this work is done and other assocated moving costs.
Partner 1 is very keen and sees it as the natural next step for the business - the customer base is there, they are maxing out the current clinic room.
Partner 2 is not so keen to invest the money and time at this stage in their working life. Partner 2 has mentioned retiring next year(but not committed to anything).
Partner 1 understands and accepts this but wonders if there a structure in which they can push on with the move with Partner 2 remaining involved at their current level; but when they retire, this move and any subsequent investment and reward is solely that of Partner 1?
How could that look? Is there a common way of doing this in business?
Realistic risk of Partner 2 feeling left out - Partner 1 calling more of the shots as the new premises is 'theirs', dynamic of the partnership changing dramatically. Employees no longer knowing who the boss is etc...
The terms of the exit of Partner 2 when they retire is also unclear at this stage - whether they become a silent partner and take some % of profit each year, or whether Partner 1 buys them out in full etc... All TBC.
Any experience or advice welcome, thank you as always PH.
Edited by ColdoRS on Tuesday 12th May 05:52
psi310398 said:
A useful summary but what are the terms, if any, of the existing partnership agreement relating to any dissolution, exit and dispute provisions?
As per this post The existing partnership agreement is your first port of call.
One you fully understand what that says then you can work from there
Ah, OK.
I don't know for certain (it's not my business) but I don't think it is a partnership in the legal sense - my use of the term partners has confused things.
Business partners/two self employed people trading as 'xxx - xxx' is probably more like it.
I suppose what i'm asking is how do they proceed with the move fairly, to keep both members happy, or is it a case of both agree or it doesn't happen?
I don't know for certain (it's not my business) but I don't think it is a partnership in the legal sense - my use of the term partners has confused things.
Business partners/two self employed people trading as 'xxx - xxx' is probably more like it.
I suppose what i'm asking is how do they proceed with the move fairly, to keep both members happy, or is it a case of both agree or it doesn't happen?
I'm Partner 2
It seems like a lot of extra work, with Partner 1 being distracted from the current business (possibly meaning I have to take on extra work until everything's up and running). there's also additional cost of the investment and I'm not even sure how I'm going to get my current "equity" i nthe business back.
What's in it for me? A lot of hassle for very little reward.
It seems like a lot of extra work, with Partner 1 being distracted from the current business (possibly meaning I have to take on extra work until everything's up and running). there's also additional cost of the investment and I'm not even sure how I'm going to get my current "equity" i nthe business back.
What's in it for me? A lot of hassle for very little reward.
Countdown said:
I'm Partner 2
It seems like a lot of extra work, with Partner 1 being distracted from the current business (possibly meaning I have to take on extra work until everything's up and running). there's also additional cost of the investment and I'm not even sure how I'm going to get my current "equity" i nthe business back.
What's in it for me? A lot of hassle for very little reward.
This is what it boils down to.It seems like a lot of extra work, with Partner 1 being distracted from the current business (possibly meaning I have to take on extra work until everything's up and running). there's also additional cost of the investment and I'm not even sure how I'm going to get my current "equity" i nthe business back.
What's in it for me? A lot of hassle for very little reward.
Also as partner 2, I have invested in this business as well to build the client list so there is goodwill. If I was to just retire now then I would expect a % of ongoing profits like royalties or do I get to sell my position to someone to take over from me?
Secondly, if I am to help with this expansion and take a risk forking out capital then I should get some ongoing return for my effort.
Partner 1 needs to have an honest conversation with Partner 2 as to their retirement plans and broach the subject of buying them out. This assumes it's a formal structure.
If it's not a formal structure, then that conversation can go a bit differently - P1 can tell P2 that they intend to split away and lease the new property and will be leaving the partnership. It may well be that P1 has a conversation with staff to sound them out if they would like to work for the new business (assuming there is no non-compete).
If I was P1 then I'd probably be having a brave conversation with P2 and explaining the facts of life - they want to grow and take on more clients, and they recognise that P2 is coming up to retirement. P2 then can either say they are in, and the two can then formalise things (form a ltd co, allocate share capital, shareholders agreement etc.) or agree that the current revenue share continues until they retire and then they walk away. I doubt that there is that much goodwill built up with P2 solely to make their "share" currently worth much.
If it's not a formal structure, then that conversation can go a bit differently - P1 can tell P2 that they intend to split away and lease the new property and will be leaving the partnership. It may well be that P1 has a conversation with staff to sound them out if they would like to work for the new business (assuming there is no non-compete).
If I was P1 then I'd probably be having a brave conversation with P2 and explaining the facts of life - they want to grow and take on more clients, and they recognise that P2 is coming up to retirement. P2 then can either say they are in, and the two can then formalise things (form a ltd co, allocate share capital, shareholders agreement etc.) or agree that the current revenue share continues until they retire and then they walk away. I doubt that there is that much goodwill built up with P2 solely to make their "share" currently worth much.
ColdoRS said:
Ah, OK.
I don't know for certain (it's not my business) but I don't think it is a partnership in the legal sense - my use of the term partners has confused things.
Business partners/two self employed people trading as 'xxx - xxx' is probably more like it.
I suppose what i'm asking is how do they proceed with the move fairly, to keep both members happy, or is it a case of both agree or it doesn't happen?
In legal terms, each party has next to zero recourse that obligates the other party in any way.I don't know for certain (it's not my business) but I don't think it is a partnership in the legal sense - my use of the term partners has confused things.
Business partners/two self employed people trading as 'xxx - xxx' is probably more like it.
I suppose what i'm asking is how do they proceed with the move fairly, to keep both members happy, or is it a case of both agree or it doesn't happen?
Yet again this underlines the importance of establishing agreements between parties at the outset. You do not need to have a legal or formal partnership for such an agreement to exists.
As Cyberprog mentioned, this just comes down to open discussion between the pair of them. That's it. But I would suggest that Partner 1 has more to loose than Partner 2 who, all things being equal, will have amassed more wealth and security over an additional 20 years of professional life.
Seems to me that partner 1 is in the driving seat here if he wants to be.
I would go with Cyberprogs suggestion that an amicable conversation with a view to buying partner 2 out is the way forward. That may mean a single payment or it could be spread over time and no reason why it couldn't include the option for p2 to keep working/earning at the new premises as part of the deal. If the partnership agreement is as informal as we think then the goodwill value would be fairly limited so it shouldn’t involve large sums and may well benefit both partners best if it is done by allowing p2 to work as much as he wishes at the new clinic.
P1 can finance the move and recoup the returns over time.
If p2 is not open to this at all then it sounds like p1 has little/no legal tie to staying with p2 and would presumably be able to take staff with him to the new venue as he recruited them in the first place.
I would go with Cyberprogs suggestion that an amicable conversation with a view to buying partner 2 out is the way forward. That may mean a single payment or it could be spread over time and no reason why it couldn't include the option for p2 to keep working/earning at the new premises as part of the deal. If the partnership agreement is as informal as we think then the goodwill value would be fairly limited so it shouldn’t involve large sums and may well benefit both partners best if it is done by allowing p2 to work as much as he wishes at the new clinic.
P1 can finance the move and recoup the returns over time.
If p2 is not open to this at all then it sounds like p1 has little/no legal tie to staying with p2 and would presumably be able to take staff with him to the new venue as he recruited them in the first place.
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