Know-How Exchange : Other

You'll want the advice of an attorney or CPA (I am neither) before finalizing anything of this nature, but here are some questions and thoughts to guide you.

1. Do you actually NEED a partner to help you run the business? Were you looking for a partner before this situation arose?

2. Apart from money, what other long-term assets (managerial, sales, intellectual, marketing, large customer following, etc.) does your potential partner bring to the business? Look at the FUTURE value of the potential partner, not the present value. Keep in mind that you may want additional partners in the future, so don't give away so much that additional partners would cost you a majority interest.

3. What will it cost you to replace the present employee position that your potential partner would leave or grow out of? A partner cannot remain a "regular" employee without conflicts arising eventually. So, you're getting $70,000, but will it cost you $40,000 to get it?

4. If you're thinking of partnership solely because of the financial involvement, then consider something other than partnership. Give your investor a good return on the investment, which you can do by monthly payments, profit sharing, share equivalents, bonus payouts on conditioned criteria, or limited shares that do not include management of the business. (This is the business equivalent of organizing a trust fund rather than getting married.)

6. Don't overlook the potential lucrative nature of franchising, where a $70K buy-in might be quite reasonable, and if this "charter" franchise works, then perhaps this person can help you recruit or set up additional franchisees in other locations, with a financial reward tied to each occasion.

7. If you still are drawn to the idea of partnership, then consider taking smaller steps. Perhaps in the first year of your financial relationship, there are financial rewards. In the second year, there are management responsibilities. In the third year, if specific conditions and criteria are met, there is a partnership option. Don't rush in until you know you have a good partner -- compatible, trustworthy, respectful with staff and customers, smart, responsible, experienced, financially savvy, uses good judgment, keeps calm in difficult situations, is a leader, and shares your same business values -- it takes time to find these things out, and there are no shortcuts.

7. If partnership is your true desire, then detail the ideal outcome of the partnership. Five or ten years from now, what would a top partner have accomplished for you and your organization? How many stores? What new business disciplines? What streams of income, and how much net revenue? What market position? What customer groups? What technology or treatment advances? Structure the partnership or financial relationship so that it helps you to get that outcome.

Sorry to be long-winded but it is common for small business owners to give away part of their business too early in the game and thus to limit their entire future. Just be sure that if you're going to play the partnership card, you're getting a partner who has the talent and connections to take your business to the Superbowl, and not limit your game to a Saturday scrimmage -- fun, but not as profitable.

Hope this helps you in your considerations. Best of luck to you with your new satellite.

Many of us have experience with partnerships like the one you're considering, but in truth this is a MARKETING website, and our true expertise is Marketing. There are not many lawyers here, and that sounds more like what you need. This is not primarily a marketing issue.

I agree with the input provided by Peg and Mr. Goodman. You need guidance from a good lawyer and a CPA/tax adviser.

Also, I note the word "option" is used in your question. I think this is an important word. It's very difficult to know the future of any business arrangement, and therefore good to have options and contingency planing in place before final agreements are made.

Best of luck in your new ventures,

Steve

Truthfully, before I got a lawyer or CPA involved, I would sit down with some good business mentor for you to talk through the options and what is right (though a business savvy CPA or lawyer could work for this also).

All of the options you talk about are legal (though legal advise would be advisable to make sure they are structured correctly) and can be profitable for you (but CPA advise would be advisable for you to make sure you structure it so it can be most profitable for you). But not all have the same benefits and risks for you.

Talking to someone who understands different business structures and maybe an idea about your business would be useful to figure out the general direction you want to go in.

I would also read up about business structures on your own at https://www.nolo.com/legal-encyclopedia/business-structures. You keep talking partnerships, which to me means you are currently a sole proprietorship. For a healthcare business, I would think you'd want the personal protections available from being some sort of corporation (likely LC or S). If you are a corp, you may call him a partner (if that is the route you go), but in actuality they would be a shareholder (as would you).

Peg does make a good point above that could be summarized to a 4th option - separating the starting of the satellite office from the bringing on a partner. You do the satellite office and have the person you were going to partner with run it, and perhaps slowly buy in as a part owner of either that site or the entire company.

I am a CPA and I do a lot of consulting on these issues. Peg has addressed the most important questions. Tax issues, liability protection, and division of profits/losses are all VERY important but come after the questions Peg has raised.

Partners are a big pain. You had a great idea and started a business. Your vision, your risk, your passion. If you have a partner all of that is diluted. Most often I find that the "current employee / potential partner" lacks the drive and ambition to be a business owner. They end up being an anchor. They have been transformed from a good employee into a weak partner.

I also agree with the advice to separate the "do I expand" decision from the "do I need a partner" decision.

Finally, if you decide to go ahead, consult with experienced CPAs and attorneys to flesh out the agreements and make sure you all understand and agree to what you are signing.