How to become a partner 1

[landguy]

I have been working for the same small company for about ten years now, I joined in within the first year of that company's life, its a very small company, myself and the owner (both of us PE and PLS)and one field crew, and thats it, not even a receptionist. and since day one I was promised a partneship some times down the road, so I worked as hard as I can, but all what that did is shifted more reposibilities from the owner to me, and every time I talk about becoming a partner with the owner, he gives me some execuse and says next year for sure I will offer you to buy some shares. Since I got my surveying license earlier this year, I have been doing every thing in the office from shceduling field crews, to design work to answering phones, the owner comes in at 10:30 or 11:00 and usually does billing, taxes, and pay roll only. I sat down with him recently to discuss becoming a partner, and he said: beginning of the new year for sure, and told me that he has to evaluate the company, and then offer me a percentage of that to buy, but he says that he expect it to be worth 2 millions. that sounds way above the line for me, since all we own is few computers, furnitue, the regular office equipment, one field crew gear, and one field van. could his price be reasonable? any thoughts on this? thanks
p.s. this is related subject in to: thread732-90370

 

[TheTick]

If you can come up with enough money to buy in, why not venture out on your own?

 

[Pressed]

From the way you have written the story and that he has been putting you off for 10 years, it sounds like he is trying to make you stop asking for your part. After a decade of promise I would be kinda bitter.

If you do get to talk with him ask to see the costing in detail. Good luck.

_______________________________________
Feeling frisky.........

http://www.tailofthedragon.com

 

[landguy]

the only hardship I would be facing is to find new clients, unless I want to count on some of my existing clients to follow me to my new buisness

 

[MikeHalloran]

I've been told, by someone who actually has money, that in terms of steering the business, owning less than fifty percent of it is pretty much the same as owning none of it.





Mike Halloran
Pembroke Pines, FL, USA

 

[CorBlimeyLimey]

Engineerusa ... Re-read your post & then take a long hard look in the mirror. I'm betting you will see a large 'S' on your forehead. Why should the owner want to change the cushy number you've created for him?


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How to get answers to your SW questions faq559-1091

 

[astructurale]

Sounds to me like you are really running things to begin with. If he doesn't want your business you should start out on your own and be his competition. Like you said you don't have a lot of equipment and staff, so go for it! Plus if you are doing all of the work, then it sounds to me like he'll be left with a lot on his shoulders if you leave.

I would not settle for less than 50% ownership. Afterall you have proven your worth. And if you leave then it may be likely that your clients will follow since they are used to dealing with you first hand anyway. It will end up being his loss and not yours for not making good on that partnership.

 

[monkeydog]

Engineerusa,
I am not in the field you are discussing, but the value seems inflated. If you are serious about buying in, I would have an accountant check it out.
I have a neighbor who is a mortgage broker, he routinely puts a "for sale" sign in fromt of his house. His price is twice what it is worth. That does two things for him, 1st it lets him know who needs a lender, and if someone want to pay twice the value he make a bundle.

 

[landguy]

Thanks guys for all the feed back, your thoughts supports what I have been thinking of recently, which is, even if he finally offers me some shares at his non practical price, there would be no way for me to buy more that 10 or 20 percent only (cost: 250k to 500k, I do not know if I even can pay that over ten years or so) and the income I will get from that 10 or 20 percent will go for paying the price of those shares for few years to come specially if business stays the same as now. so It will take another few years before I can actually start to get any return on my investment. and I do not want to make the same mistake that I have been making in the past. the only reason that I stayed working with him, is because of the expeience I was getting, and learned how to depend on my self more and more. but now that I have the experience, I think that I will stop running after such deal, and even turn him down if he affers me such deal.

 

[CarolinaPE]

Does anyone know of the standard procedures to figure out the "value" of the business, buy-in share cost, etc? There has to be some articles on this. I would anticipate there is an anticipated rate of return in the form of profits on the value of the business and you would buy shares of that business' value. Kind of like buying stock in the company. After paying everyones salary and all the costs of doing business, the owner is left over with the profit. That profit represents a percentage of the business value (rate of return, 10%?) I would imagine.

 

[cadnutcase]

Newfella,

The only sure formula for figuring out the value of a business is this.

"How much you sold it for" = "How much it's worth"

It has been my experience in that especially small business you can't get much more that the value of the assets plus promised revenue plus a little extra. Employees aren't considered assets. My personal opinion also is if you aren't going to be getting your investment back in three years, it's not worth in investing in.

EngineerUSA,

For $250,000 - $500,000 sounds like you could start your company. Just make sure you don’t do any of your new company’s business on your old companies time. Like courting potential customers away from your old company. Good luck if you decide to go down this route.

My 2½ cents (adjusted for inflation)
Cadnutcase

 

[landguy]

Newfella: I have to believe that the rate of return should be more than 10%, because with that, it will take 10 years to get my investment back and start mking profit. the more I think about this, the more I realize that buying in is not a good option, unless I get say like 30% return, that way I get my money back in about three years.
thanks all for the input

 

[CarolinaPE]

Engineerusa,

Your post really interested me because I am in a similar boat as you but not as long with the company. Partnering up was discussed before I even came on board and I have not heard a word yet (it has been a few years but nowhere near 10). Being that I am (supposedly) working toward this and have not heard a word as to what a buy-in will be or what I can expect in return is beginning to concern me (the trees in my backyard have yet to sprout dollar bills). My position is beginning to not pay off financially as-is and I have already left money on the table from my last position. I wanted to at the very least get some experience in this field so all is not lost if things do not work out. I looked a little into what the norm is for buying into a partnership online but did not find anything other than a few firms that specialized in assessing a fair value. All I can say is that situations like this should boil down to a numbers game (get out your spreadsheet!). If you can buy in at a fair price and get a fair return it may be worthwhile. Otherwise it would be a sticky situation and you may have to end up going elsewhere or starting your own firm (and it sounds like you certainly have the experience to accomplish that). I've thought this through and will be interested to see what will be involved with my process going forward. The funny thing is people have given me similar advice that you have received: hang your own shingle. That would be nice if the bank was ok with me not sending in that mortgage payment every month. Saving up for a while and "giving it a go" on your own may be what really needs to be compared to the partnership. Best of luck.

 

[CarolinaPE]

PS- he estimated the company to be worth 2 million? Is that how much is brought in annually or the profit after paying salaries, rent, and other costs of doing business? I was trying to make a distinction between the income and profit and am not sure if your percentage should be based on the profit or total income. That is where someone with expertise would lend a hand.

 

[landguy]

Newfella:
I appreciate your input on this,
I hope that you do not find your self in my position after completing ten years with your firm, because in the beginning I did not worry too much because I needed the experience, but then after the fourth and fifth year, I started to think that it is hard for me to just walk away because I would be throwing all my effort and time invested in helping establish that company down the drain, and always said to my self, give it another year may be he means it this time, at least I will get something, specially that some years I accepted a lower pay than what I could get somewhere else because I believed his promises. But I am finding out that the more he waits on letting my buy in, the more expensive the price will be.
As for the value of the company, it had years where the net profit after paying all expenses would be 250k, but last couple of years it dropped to about half that, and I just do not see a way how this kind of profit is worth 2 million dollars. He argues that it would be partially my job to expand and get more work and increase that profit and thus increasing the value of my 10%
I my self do not have a large bank account by any means, I also have mortgage and other bills, but I was hoping that if I am to buy in, I would make a deal with the company to pay over a certain period of time using mainly the money that I would get in profits.
The thing is I would not need any thing close to price of the 10% to go on my own, I am worried about not having enough work for a while, if not many clients followed me, and could not find many new clients, specially in the current slow Michigan economy.

 

[GolfMeeting]

He should be giving you a big % of the company to keep you from leaving.

Why not just own 100% of your own company? Your $$ would go a long way towards starting one.

Small civil firms I have seen priced from $5 to $10 million. I am not sure how far off base these prices are.

 

[CarolinaPE]

I hope so too Engineerusa, I plan on giving it another year and then evaluate my situation relative to the rest of the market. I really need just another year or so in this field for my market value to begin to take off. When I started it was "suggested" that I was to work extra hours, now I feel those extra hours should be somehow subtracted from the buy-in to make things fair. Maybe you should tell him the same? Can't a guy just get a win-win? Unfortunately my gut feel is they won't see things the same way.

 

[jdarco]

The problem with dealing with sole owners is they generally have an extremely inflated view of what they think THEIR business is worth! Because they put their life, blood, sweat, and tears into building the business, it is very hard for them to value it objectively. Take a look at the hard assets and their value. There is some value in goodwill, but it is intangible. From what you describe, I think you'll find it easier to go on your own that convince your boss of the real value of his business.

 

[landguy]

I totally agree with jdarco and Newfella, I am very much over the Idea of becoming a partner, I am not planning on negotiating that at all any more.
on the other hand, I think that I can summarize the difficulties that I expect to face by going on my own in the following:
1. Leaving every thing that I helped build and walk away empty handed (not that I am getting anything back at this time, so this is no big deal)
2. the fear of not getting enough clients specially in the beginning (this actually should be no. one factor)
3. knowing my employer, he will tell everybody that I am stealing clients from him, if some clients leave him and follow me. (this of course the least of my concerns).
4. Also I think that I should go on my own at a time when the economy is going up, and in the spring time, since thats the time that Land Surveying and then Civil engineering would be in higher demand

 

[monkeydog]

Engineerusa,
Item (1) concern, you are not leaving empty handed. You have 10 years experience running the operation. That experience is invaluable.
Item (2 & 3) concern, all new business have that concern. Keep your integrity, don't do anything the present owner can pin on you. Word will get out that you are not with the company any longer. Put an ad in the local trade publication with your name. The people that have been doing business with you will respond after dealing with your current boss.
Item (4) good idea.