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Offered partnership, need advice.

Discussion in 'Business Management' started by artbot, Sep 1, 2011.

  1. artbot

    artbot Very Active Member

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    After winging it for 32 years and having more bad to mediocre years than really good ones, my main buyer brought me into his office two days ago and offered me a partnership. At first I was only mildly interested. But after giving it some thought, I believe it may be the way to get my business into the "big time".

    The partner:

    -sold to him for the last six years. the most honest business man i've ever known.

    -he has 18 employees. his business is booming (art consulting/installing for massive hospital projects). has about a 15,000 square foot showroom/framing area.

    -his average order is about $500,000. has many orders through the year over $1,000,000.

    -seeks to not only provide custom art installation for his clients, but, also provide architectural interior panels (very big business), and custom lighting fixtures, all manufactured by his company.

    the other partner (me):

    -has been in the art business for 32 years, never made over $100,000 two years in a row. hates the business, sales, taxes, customer, shipping, promoting side of the business.

    -have 3 acres, with three phase, unrestricted property. a slew of modified half baked inventions and proprietary coating systems (digi-etch, digi-boss, and digi-glass).

    -average order is $15,000, annual sales $170,000.

    the deal:

    -i can name the company Alldredge Studio or whatever i choose.

    -i can create the design doctrine (kinda be my own steve jobs for interior panel innovation and design). he provides the space (leasing locally or buy some cheap building), the management, start up equipment ($400,000 worth, ie, flatbed printer, ovens, vacuum presses, cnc, plating and etching equipment), trade shows, catalog, etc.

    -art/walls sculptures will be about 10 units per years ($20,000-$50,000 retail each). which is fine. i hate being "prolific". that is another word for making shoddy work.

    -we come up with a split for what the company does.

    question:

    how do i go about not regretting this in the next five years?

    ...ways to get out of the deal, audit project costs, retain intellectual property over coating systems and designs, set the split, etc...?

    has anyone on this board had a good or bad partnership experience that their hindsight would be applicable?

    thanks in advance. and i apologize for the long letter.

    aa
     
    Last edited: Sep 1, 2011
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  2. ProWraps

    ProWraps Very Active Member

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    know anyone in a successful partnership?

    if you knew my story you would ****. ill save the details.
     
  3. artbot

    artbot Very Active Member

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    @prowraps

    i remember seeing a "talk" on pbs (one of those PBS pledge drives where they do a whole week of some motivational speaker "genius"). he discussed in length how business has become too complex for one man to wholly run/own a company. that two minds play better than one. it impressed me listening to the argument. but in actual application, i'm sure there are many complications.

    my main thing that i'm concerned about is design/direction control. i quit a major production deal about ten years ago because they kept my old line up forever. i didn't have control over what was canceled and what could be introduced into the line.
     
  4. Fred Weiss

    Fred Weiss Merchant Member

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    Over the years, I've been involved in a number of partnerships. One with my father, another with my ex-inlaws, a best friend and a complete stranger. The only one that worked well at all was with the stranger located 200 miles away.

    That last one ended in 1974 when stress was put on the venture by the Arab oil boycott and half the customers I had developed fell by the wayside. Our monthly profit, which was quite decent (resulting in a happy partner) dropped to a $500 a month loss. What we faced then was a basic disagreement over how best to deal with the changed circumstances.

    My partner wanted to terminate our three employees and have me run the business alone until it recovered. I wanted to retain all three and sell our way back into profit able to grow again with three trained assets to assist and all the more loyal as a result. We agreed that I would have three months to try it my way after which he would decide whether or not to exercise the "suicide clause" in our agreement.

    Our suicide clause allowed either partner at any time to make a buyout offer to the other partner. That partner then had only the option to accept the offer or match it and buy out the first partner. In my case, he made the offer and I accepted it. He installed his best friend to run it who proceeded to terminate all the help. Ultimately he sold the business to an expanding competitor and lost his best friend in the process.

    There are two points here:

    1. Any partnership should do well as long as profits are being made and goals being achieved. The question becomes what each of you has as options if things do not go well and you disagree.
    2. Any partnership stands the best chance of success when there are no emotional ties between the partners and a clear division of responsibility exists ... even autonomy for the managing partner.
     
  5. iSign

    iSign Major Contributor

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    artbot,
    you are clearly a talented individual, with a good sense of business & people...

    There is another member here that I would describe that way, named Dr. Cas (Bruce)
    He is not a regular, but look him up (or Bruce Bowers on Letterville) and ask for his thoughts.

    I only know that he had a partnership working for well over a decade (or 2?) ...but then when it ended, I think it still ended badly. During those years, in discussions such as this, he was often the lone supporter of the potential for partnerships among a slew of nay-sayers...

    I'm not sure what he would have to say about it now, but i know it would be based on extensive personal experience (and on his sharp mind)
     
  6. Sticky Signs

    Sticky Signs Very Active Member

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    I truly believe that 2 heads are better than one but I suggest you do your homework and make sure that this guy has a skill set that compliments yours. Consult a lawyer and draw up a partnership agreement that you can both agree to. I've heard way to many horror stories about partnerships gone wrong so tread lightly and don't make any hasty decisions.
     
  7. artbot

    artbot Very Active Member

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    Houston TX
    thanks for all the advice. definitely attorneys, patents, trademarks, etc. one sad motivator is i'm 43 years old. without any retirement saved up, recovering from divorce and custody, etc. i need to make an aggressive move either by myself, with this or another partner soon. this kind of stuff comes by in your prime. i've spent so many thousands of hours doing this so that i could have this very similar business model up and running. but cash flow to set it up and distribution/sales would be out of my skill set.

    @isign thanks for the heads up on dr. cas.

    aa
     
  8. Mason

    Mason Very Active Member

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    Partners are for dancing.
     
  9. Pat Whatley

    Pat Whatley Major Contributor

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    Just remember, all partnerships eventually end. Make sure you've covered how to end it before you ever start it. My former partner refused to discuss that up front...a year later the ******* went to prison for stealing from the company.

    The best bit of business advice I ever heard was from Jim McMahon, yes, the wrestling guy. He said "There's always a victim. Don't be him."
     
  10. Custom_Grafx

    Custom_Grafx Very Active Member

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    Sounds like a great opportunity to me. Go hard.
     
  11. Mainframe

    Mainframe Very Active Member

    Partners are dead weight needed to be shed not gained
     
  12. threads1

    threads1 Member

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    ArtBot – I have been in business for myself most of my adult life. I have a partner. My wife. Who happens to be VERY conservative. There have been times when I thought we should go for it (jump into the big league) and was held back by the “scared factor”. It’s true, most partnerships end with bad results but, some make it with great success.

    My thought on your situation is to hire a really good business attorney and draw up a contract that is agreeable to both parties. I would definitely have a suicide clause in it. Be sure to define each person’s responsibilities so everyone knows what their job is.

    At 43, you are still a very young man. If it all went south you would still be able to pick up the pieces and move on. I think this sounds like a great opportunity. One that may never come along again. I say go for it. You could go from 100K to who knows….500K.
     
  13. WildWestDesigns

    WildWestDesigns Major Contributor

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    ^^^^That is going to be a good point to start. A lot of partnerships fail more due to not having one in place. Go to a lawyer that specializes in that field and that can draw up a contract that not only protects you, but your partner as well.

    See about forming an LLP as well. I do believe Texas allows them, but I'm not sure as to their rules on it. Even then there are work arounds for it, it just depends on how badly you want to form them.

    As to it also being a limited partnership, that depends on what y'all are wanting to do.
     
  14. BobM

    BobM Very Active Member

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    Analyze your current situation and look within. Why are you having more "bad to mediocre" years? Undercapitalized, lack of management skills, expenses to high, poor location, loss of focus due to divorce, divorce/cash flow problems? Do you have a 1 year, 5 year, 10 year business plan? Are you working to survive to the next payment/big job? Are you borrowing money to stay open? With 32 years in business you may just be going "stale" and need outside help to regenerate your business. Check with Marketing Partners, a Merchant Member here on Signs101. I don’t know them, but their resume includes lots of work with sign companies.

    More than half the marriages fail in this country, and you've been thru that. I don't know of a single partnership that has lasted more than 5 years. The one that I know survived 4 years was full of promises, agreements, excitement and initial success. Then reality hit and the partners spent the last 2 years figuring how to separate as "friends". They ended up in court, out of business and paying off corporate debts.

    Ted Burbank's book, "Are You Creating Wealth With Your Business Or Just Making Money", (wwwbuysellbiz.com) might help bring you back into business focus by detailing what you should be doing and why. It may be a refreshing way to get you restarted by focusing on the future and how to maximize what you currently have.

    Look within, check with outside professionals, re-focus, think, long and hard about what happens when, not if, the partnership fails.
     
  15. John Butto

    John Butto Very Active Member

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    #10 units @ $50,000 = $500,000
    Cost of materials, insurance, overhead paying etc = $350.000
    That leaves $150,000 now you split it $75,000
    Partnerships don't work because one always feels that they work more than the other. It is a Cain and Abel thing, and you know who wrote that part of the bible.
     
  16. Billct2

    Billct2 Major Contributor

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    Sounds like a great opportunity if structured correctly.
    I jad a great partner, but he was the majority owner, which I actually think made for
    a better partnership, he was the ultimate decision maker and also it was mostly his money. When he wanted to go back to his original industry work we had it spelled out,
    1. Sell the business and split the profit according to our percentage of ownwership.
    2. Have him become a "silent" partner. Retaining his ownership and getting his percentage of the profit ( a complicated scenerio)
    3. Me buy out his percentage. Which is what I did and we came to a quick aggreement on the value (and that can get sticky if you don't agree, look at OCC).

    Good luck
     
  17. night eagle

    night eagle Active Member

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    It's a terrible idea. Run away from this. At some point this will end and so will your business.


    Mark galoob
     
  18. TheSnowman

    TheSnowman Major Contributor

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    I think a lot of us play out this scenario in our heads. Owning your own shop sucks, so does the responsibility. It'd be nice to split that responsibility w/ someone. But like so many others have said, it's a gamble, and normally it doesn't end well.

    That being said, sometimes big risks have big rewards, and you don't know till you walk through the door. I'd say if you are willing to start over again from the ground doing what you are doing now, then have at it. If you aren't willing to work for someone else to become employed again, or start on the ground floor again, then you'd better stay put.
     
  19. Steve G.

    Steve G. Member

    Just a thought, but have you considered just becoming an employee to ths business? Of course you would need a compensation package to fit your worth. Maybe you could contract a fair profit sharing program, so that if the venture is booming you would reap more , but with much less to lose...

    This potential partner obviously knows that you can contribute to this business profiting, so as long as he's making money, he may not have a problem with sharing.
    I know a lot of vps / managers that make a bunch of money...
     
  20. HulkSmash

    HulkSmash Major Contributor

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    Tell him you'd be interested if you can split his earnings from the other side of his business :)
     

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