Selling 50% ownership

[Belladella]

Me and my fiancé set up a business 2 years ago. At the start we put in 50/50 of the capital and however due to his poor track record we put the whole business in my name so I own 100% of shares. My fiancé runs the business on a day to day basis and I oversee and provide advise but I do not work there full time as I have another job. I also have support cash flow in months of struggle.

We have come to a point where the business is relatively stable but as partners we are struggling to get on as we have relationship issues.

I am at the point where I would like to sell but he is not. This is his long term plan but not mine. Legally I realise I could sell but I am not that way inclined to do so without his permission as I do consider us 50/50 equity holders even if the legals don't say that. Plus he could also stop running the business if it was to turn spiteful and that isn't the right outcome for either of us. He is not in a position to buy me out or borrow to buy me out.

What is the process to find an external buyer for my share? Is it difficult? How is the best way to approach my partner as this could lead to a situation that he has to work alongside someone he doesn't like /get on with.

Any help would be much appreciated as this is causing a lot of stress.

 

[Clinton]

In these situations the first question that arises is about whether you have a shareholder agreement. But as you own 100% of the shares this is not an issue.

With respect selling 50%, yes, it is technically possible. However, I suspect you will struggle to find a buyer. The lower the turnover and the profit the more difficult it will be to find someone who's willing to pay money to get involved in owning 50%. It gets more attractive if you're selling 51% rather than 50% but not a great deal more attractive.

There are numerous options that may be open to you including selling 100% of the shares (on paper it's 100%) to your partner which he finances via external borrowing or via part-borrowing and part seller note.

With respect process to find a buyer etc., I have a question for you first: What is the sector the business is in and what type of turnover and profit is it generating?

 

[Belladella]

Thanks for the reply. It is a bar restaurant c.300k turnover first year but we have now built a second bar so expect next year to be c.500k. Our business opened in year 2 and the sevond year accounts haven't been completed as yet.

 

[Clinton]

You didn't answer my question about profits - you could provide figures for last year and anticipated profit for the current year based on performance figures to date.

 

[Belladella]

I don't know the profit margin as yet as the accounts haven't been completed for the year and we have been spending a lot of money on renovating more rooms in the property.

 

[pentel]

So what do the monthly management accounts indicate? You do have monthly management accounts prepared don't you?

Alternatively how do the figures compare with the business plan?

 

[Clinton]

I don't know the profit margin as yet as the accounts haven't been completed for the year and we have been spending a lot of money on renovating more rooms in the property.

Do not waste your time even thinking of selling without a complete and proper grasp over accounts!

You are making excuses for not knowing your numbers. "We don't know numbers because we've been spending money on improving this fantastic business you're going to be buying" is the kind of vague salesy BS that doesn't work with investors. It simply says you're clueless with accounts... and tht's not a good signal to be sending.

Know your numbers, know your profit. It doesn't matter whether accounts have been completed for the year or not. What was the position last year and what is the position for the current year to date? That is what I asked. There is a reason I asked, it's not simply curiosity. Given the sector I suspect there's no IP or stock or debtor book against which your partner can raise a significant chunk of the capital to buy you out. So I'm trying to find you other ways.

 

[Belladella]

I understand. Do you know where I could get any templates/ examples to start working on? This is my first business so any help or direction would be much appreciated.

 

[STDFR33]

Keeping good bookkeeping records on a regular basis would be start.

Businesses should not wait for the completion of their annual accounts to assess the financial performance. If it's failing, do you really want to wait over 12 months to find out?

 

[Clinton]

Get a good accountant who puts your accounts online for you and shows you how to use whatever the package he sets you up with. Then do all your transactions in that package.

Once you've got all that sorted you can get an immediate snapshot any time of the year. Simply click a couple of buttons and voila - balance sheet, trial balance, whatever you want!

 

[The Byre]

Let me just state from the get-go that I am not in the market for a restaurant anywhere, at any time. It is a horrible and totally hands-on business.

But, if I may look at your proposal dispassionately -

Me and my fiancé set up a business 2 years ago. At the start we put in 50/50 of the capital and however due to his poor track record we put the whole business in my name so I own 100% of shares. My fiancé runs the business on a day to day basis and I oversee and provide advise but I do not work there full time as I have another job. I also have support cash flow in months of struggle.

Your opening statement tells me that the person who owns half the business has 'a poor track record' - I assume that is credit and if he cannot even own a business on paper, that implies that he might be an undischarged bankrupt and nobody in their right mind does business with an undischarged bankrupt.

You further state that he runs the business day-to-day, yet neither of you know what your P&L figures look like. Worse still, you have had to inject cash into the joint, to keep the doors open. That means that your restaurant manager is not up to the gig!

I am at the point where I would like to sell but he is not. This is his long term plan but not mine.

So you have an incompetent manager and co-owner who is unlikely to want to quit. He is your only real potential buyer and that is the reality of the situation.

he could also stop running the business if it was to turn spiteful and that isn't the right outcome for either of us.

Oh great, now all kinds of personal animosities are playing a key part. That will put an outside buyer right out of the picture! A buyer is looking for a profitable and well-oiled machine, not a pile of broken dishes!

Get a good accountant who puts your accounts online for you and shows you how to use whatever the package he sets you up with. Then do all your transactions in that package.
Once you've got all that sorted you can get an immediate snapshot any time of the year. Simply click a couple of buttons and voila - balance sheet, trial balance, whatever you want!

That! Even if you can't get the Duck out of Fodge, you should have done that on Day-One!

Moreover, you need someone who understands the restaurant trade and can look at each and every aspect of the business, each dish, the profit on each dish, the role of every employee, PoS system, everything and make the place genuinely profitable and a real business.

When you have proper systems in place and can prove that this is a profitable business that does not depend on the work of one or two people, but is a real business and is structured like a business, THEN maybe, just maybe, someone might come along and (with the acquiescence of your ex-partner) either buy half (less likely) or buy the whole thing.

But the reality of businesses is that business is all about people. A business is a collection of people, all working (harmoniously, we hope!) together to generate profits. The bottom line is, if you don't want your partner (bad credit, no proper books, cash short-falls) then an investor will not want him either!

 

[The Byre]

Thanks for the reply. It is a bar restaurant c.300k turnover first year but we have now built a second bar so expect next year to be c.500k. Our business opened in year 2 and the sevond year accounts haven't been completed as yet.

That would indicate that you are doing something right - but an investor will worry that it might just be a business that is 'stumbling-forwards', i.e. that today's increase in turnover is being used to cover yesterday's losses. Only a proper set of books with running/periodic P&L will tell them the full story.

If the system is integrated with your ePoS, that could transform the business, as you could see day-by-day, which dishes are profitable and which days, weeks, months and which servers up-sell best, etc., etc., etc.

 

[Belladella]

Thank you. We do have an epos system so I will find out if I can pull the data to put into sage