5 Steps To Buying Out a Partner in a Small Business

closeup of business partner signing buyout agreement

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As the saying goes, all good things must come to an end, and partnership agreements are no exception. There are many reasons to end a business partnership. Whether you’re leaving on friendly terms or things have come to a nasty end, we unpack everything you need to know about buying out a partner in a small business in Vancouver, BC in this article.

Buying Out a Small Business Partner in British Columbia

A partnership between business owners can be a wonderful and profitable relationship, but at some point, you may find that yourself and your partner have differing goals. One of you may be interested in a new business opportunity or ready to retire. Whatever the reason, before you initiate a buyout and go your separate ways, follow these steps for a smooth partnership breakup.

  1. Review Paperwork

    Hopefully, you began your business partnership with a written partnership agreement that includes protocols on decision making, running the business, and exit strategies. If you have a buy-sell agreement in place, then it should be your first step in assessing the buyout process. Of course, if your former partner is a friend or family member, then you may have made a goodwill agreement upon developing the business. In these cases, it’s best to enlist a professional early on, before you begin any buyout negotiations.

  2. Determine the Business’ Value

    Your next step is to determine what your business is worth with a professional business valuation. Determining the value of the company is complex, and emotions can get in the way. To ensure that everything is taken into consideration, it’s best to utilize a third-party to conduct the valuation.

  3. Plan Out the Future

    It’s crucial to take into account what roles your departing partner plays in your organization. If your former partner was hands-on in the day-to-day operations of the business, then you’ll need to determine how to fill their role. Determine whether you need to hire, add on a new partner, or if you can take on the workload yourself.

  4. Consider Financing

    Often, small business owners don’t have the capital to buy out a partner outright. Small business loans can be hard to get approved during a buyout, as the process doesn’t offer any financial benefit to the business itself. Instead, you may want to negotiate financing options with your former partner. A payment plan may offer a mutually agreeable way to dissolve the partnership amicably.

  5. Make it Official

    Once both of you are on board with the buyout agreement, it’s time to make things official and file the necessary paperwork. Take care to transfer ownership of any accounts and update passwords. While this portion can feel personal, it’s important to remember that it’s to ensure a clean slate for both parties. Working with an independent advisor may ease tension.

Additional Advice on Buying Out a Business Partner in Vancouver

There’s no doubt that personal feelings can come up within negotiations. Strive for fairness, take what your partner wants into account, and stay flexible. You may want to consider partnership buyout alternatives in British Columbia, such as rewriting your partnership agreement.

While every partnership buyout is different, following these steps helps ensure a smooth process for both parties. For expert assistance every step of the way, consider reaching out to the professionals at Pacific M&A and Business Brokers Ltd. Our brokers’ results-oriented approach and proven experience can help you achieve your goals. Contact us today to schedule a complimentary consultation.