Becoming a Partner/Owner

[UDP10]

I work for a med/small sized MEP consulting firm with three partner/owners. Two are nearing retirement and, though unsaid formally, it is likely I will be asked to replaced one of them. I am fairly young and do not have much experience with the inner workings of company ownership/responsibility/liability/etc.

Before the opportunity is presented to me, or before I approach them about it, I would like to educate myself on the process - what questions I should ask, etc.

Is there a resource (book, website) that I could be looking at? Any other advice?

 

[COEngineeer]

I would think you need to pay for your retired boss' share?

 

[Qshake]

Certainly unlikely that any of the old chaps will retire and leave money invested in a company they will no longer have any say in everyday running or direction.

So either the other partners will have to purchase that share or open the company up to employee ownership hoping that the employees want to and can afford to buy out.

Partnership is about more than stepping up for a leadership role, it's also about ownership.

Regards,
Qshake

Eng-Tips Forums:Real Solutions for Real Problems Really Quick.

 

[wes616]

Assuming you are fiscally capable of buying into partnership (as stated above, sometimes it's a buyin - other times it more of a equity share), I would speak with an attorney who specializes in partnerships. Also, have an independent accountant take a good hard look at the books. Yes this will likely cost you some money, but the peace of mind you will gain is well worth it.

Wes C.
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[davidbeach]

Will this be the first ownership transition or has the firm gone through this before? The first one can be very difficult. Once the survivors see how bad that was, they generally figure out a better transition plan and subsequent transitions fare much better.

 

[UDP10]

It has gone through transition four times before, so I'm sure I'll be the only one feeling my way through.

I understand there will be a buy-in of some type and that the details of that need to be negotiated. I'm sure there's other things I'm not thinking of. Talking to an attorney or accountant is a good idea...

I was hoping to get a start on my own though .. do a little homework.

 

[MedicineEng]

As said above, if you are going to take a stake in the company you have to have money to invest in it, don't think that the partners will leave it for you for free just because they like you. If you are going to take a stake on the firm, then you need to know how much does it worth. That is why you need an accountant to see the actual situation.
One very, very important thing that you have to realize is from the moment that you are a "owner" eventually you will see your colleagues in a different way. There might be behaviours/attitudes/situations that before you would tolerate and now that you put your money in it you cannot tolerate any longer. It is a little bit like being promoted and start supervising your former colleagues. You have see if you have the will/gutts to perform this new role. Can you change from "the old chap" to the "The Boss"?

 

[davidbeach]

Some companies will have a process where you buy in using bonus amounts paid for that purpose. So, no out of pocket cash for the buy in, but not much take home bonus until the process is complete either.

 

[ajack1]

UDP10 you do not state what country you are in. If you are in the UK the chamber of commerce offer a very good (free) service I would recommend to anyone. Basically you can set up a one-hour appointment to discuss any issues or concerns you may have and they will arrange an independent specialist in that area. You are not limited to one meeting, so you could meet with a lawyer for an hour and an accountant for an hour. I found them a huge help in setting up a business and even if they do not have all the answers they will point you in the right direction. If you are not in the UK does your country have a similar body?

 

[GregLamberson]

If you are interested in doing some research on your own, I would suggest Nolo, they have a website and specialize in company set-up & formation, operating, taxes, HR, prtnerships, etc. They are an excellent source of basic information.

As has been mentioned, you will need to do some due diligence on the company's financial condition. I would elicit a good CPA to go through their cash flow, statement of earnings and balance sheet. It will be pretty clear pretty fast how solid the company is from a financial position. From that and some basic forecasts it's very easy to determine the value of the company so you can determine if what they want are asking is reasonable.

Working for the company, you already should have some insights on their relationships with current clients which is a big part of the equation - do they do allot of repeat business, are they lawsuit prone, any outstanding judgements? Any pending, etc. Any areas of significant exposure (asbestos, etc.)

Once you determine if the investment is a good one, you will need to discuss candidly with the other partners the roles & responsibilities, expectations, etc. and it is important to get these in writing and make sure all partners sign off on them. Then you can begin to look at an agreement, at which time you will want to involve an attorney specializing in partnerships to work out the details. Of course financing on your part, if required will need to be worked out.

Good luck.

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website:

http://www.oil-gas-consulting.com

 

[FACS]

I would suggest business courses; MBA is ideal.

Charlie

http://www.facsco.com

 

[Ashereng]

Know any personal friends/relatives, friends or friends/relatives that has gone through what you may be going through? I would suggest you talk to them.

I find that talking to people I know (or sort of know) is very useful because they also caution you on what may go wrong, what caught them off-guard, etc. in addition to what the pros (accountant, lawyers, CA/CMA/CFA/etc) will tell you.

"Do not worry about your problems with mathematics, I assure you mine are far greater."
Albert Einstein
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