business troubles

[Kevin Pearce]

Hi,

my name is kev pearce i am the co owner of a business with a colleague I used to work with.

Our business has been quite successful over the years and our wives decided that it would be an ideal business opportunity to open a children's nursery. Of course we would be the financial backers for this venture.
The nursery has now been open for two years, but we are currently supporting them in the region of 8K a month. Our business is getting a dubious of supporting them this much every month. We are looking at stopping our financial support, which means the nursery can not carry on, but my partners wife has said as we are pulling out she will run the nursery on her own without my partner, which means the money that we have contributed to the nursery so far will be lost. In total with the refurbishing of the building, which is leased and the wages etc we are looking at the £400k

Just wondering what advise we can get do we continue to pay into the nursery of how can we come to a mutual financial agreement between the partners.

 

[UKcentric]

Sounds like you need to get some arbitration or some kind of agreement between yourselves. In the meantime I would ask:

• When you say supporting the nursery, do you mean lending money to it?
• What are the terms on which the loans are made?

 

[MikeJ]

You're walking away. What happens after that is not really any of your concern. If she can make a go of it, then good luck to her.

 

[ChrisRM]

I am just interpreting what you have written and don't know the finer details.

Your main business is supporting another business to the tune of £8,000 a month to keep that a float. You want to cease spending £8,000 a month on a business that is not profitable. But if you do, your partners wife/the manager will continue operating. If she does this then the money you've spent to date is lost.

Frankly, by the sounds of it, the money is already lost. I am not sure what you are going to get back. Employees, utilities, the Landlord, Business Rates, etc have been paid out of the £8k being put in every month. None of those are going to give the money back. The money is already lost.

You may be able to sell the business but whos going to pay for an unprofitable business? You might be able to sell the lease but they're not always desirable or attract much money.

I suspect theres a lot of sentiment involved with husbands, wives, business partners, children and doing something that someone appears to love. But theres a main business that probably suffering from losing £8k a month.

 

[obscure]

Sorry if this comes across as less than positive but I really think you need to focus on the business realities - which will be hard when dealing with such personal relationships.

...our wives decided that it would be an ideal business opportunity to open a children's nursery.

What did they base this assumption on? What did their market research indicate the likely market for this venture to be?

The nursery has now been open for two years, but we are currently supporting them in the region of 8K a month.

What did the business plan indicate the time to break even would be? If it was three years it would be too soon to be getting concerned.

Alternatively, if they didn't do a business plan then two years was probably too long to wait to have this discussion......

but my partners wife has said as we are pulling out she will run the nursery on her own without my partner, which means the money that we have contributed to the nursery so far will be lost.

As has been pointed out the money won't be lost.... it has already been lost. Unless you have a proper plan to turn around the business any further money you spend will also be wasted.

Unfortunately your wife is almost certainly emotionally invested in this venture. Equally unfortunate is that the only value in the business is emotional... not actual. You need to make clear to them that, unless they can show a clear understanding of what is wrong with the business and a plan to solve those issues, it is time to call it a day.

 

[Kevin Pearce]

Thanks for listening,

The other lady involved has now proceeded to get legal advice and has came back with. As the lease was in their joint names she will be taking the business over but we have to pay our half of the building lease for the remainder of the contract threatening possible legal action if we don't.

Can one of the business partners force the sale of the business if the partnership breaks down. It might just be a threat but ....

 

[JEREMY HAWKE]

The other lady involved needs to go some sort of boot camp North Korea if you can get her in
She should have been the driving force to correct the situation the first month it lost 8K not be a pain in the ass The mistake was made at bail out payment 1 It appeared to be OK from that point on .
Threaten to sell the business Nobody is going to buy it but still threaten to sell it Then you may have a better chance of getting out on your terms

 

[obscure]

Can one of the business partners force the sale of the business if the partnership breaks down. It might just be a threat but ....

What is the share ownership split and what does the shareholder's agreement say in relation to partners leaving and the sale/purchase of shares?

 

[CW Legal Services]

£400k loss. That is a lot of support, but a loss is a loss and unless the projections are for profit I fail to see what can be recouped as the only asset is goodwill and, at £8k per month losses, then there is none. Support the lease payments as that is a legal agreement, but withdraw the funding for any other losses. That way if the other lady can make a go of it then fine, but say she earns £30k pa and pays back £10k pa that is a 40 year payback.

 

[The Byre]

The real problem is, that this debacle is going to effect your main business relationship with your business partner.

That means that the two of you have to sit down together and sort this out between you and ignore the wailing and the gnashing of teeth from your respective wives. Neither of them should be allowed within about 100 miles of a business, as they obviously will only crash and burn - so it's up to you and your buddy to pull the irons out of the fire, before everything you have built up between you is brought down in the mess.

As for the £400k - it's gone! Learn to live with that fact now and move on!

 

[Chris Ashdown]

How did a nursery loose 8 k a month, for years, maybe if you gave us a breakdown of monthly expenditure we could understand better
As a co-signee of the lease the half payment is a legal requirement and no doubt a personal guarantee is normally also on the lease so if it folds and the other co-owner is unable to pay it will probably fall on you to make good the lease payments

 

[Paul Norman]

It does seem, from this, that the nursery business is unlikely to ever pay back the money you have put in. It would require a significant turnaround in fortunes, and I suspect it is unlike that would be achievable with the current management. Unless they are willing to listen to some advice. Big advice.

So your money is gone. The key now is to reduce the cost of getting out to the bare minimum.

And remember this. Never go into business with a relative. Especially a wife/husband/partner. Because without the emotional tie you would have walked away a long time ago.

 

[MikeJ]

So, you're committed to the lease regardless. How long is that for? Any break clause? Assume the nursery is a partnership and not limited, or at lease you've guaranteed the lease in some way?

In that case, are you better off paying the lease and nothing else, or propping up the business?

 

[obscure]

The other lady involved has now proceeded to get legal advice and has came back with. As the lease was in their joint names she will be taking the business over but we have to pay our half of the building lease for the remainder of the contract threatening possible legal action if we don't.

While you are required to meet your legal obligations regarding the guarantee of the lease that doesn't mean she can just do whatever she wants or that you have to just hand the company to her. Even if you want to stop funding the running of the company (and just pay your share of the lease) you still deserve some return on that....