Cheat Sheet Q&A:
Today’s topic: Issues with a business partner
Here’s the entry:
Long time listener I very much enjoy your morning show and advice.
A few years back I got involved in a business venture with a partner. Since then we have been very successful with business doubled the first year, 10% growth 2nd and 3rd year.
But over the past 2.5 - 3 years my partner has had less involvement in the daily functions of the business but his take is ever increasing. At the same time my involvement has been ever expanding. I have even taken on many of his duties and now running the entire business myself and my take has remained the same.
It was my partner’s cash, and credit that got the business off the ground and since then has always reminded me.
There have been many talks of IRA and investing profits but it always end with him wanting to spend now and me wanting to save and expand the business with added personnel.
What is your advice for options of buying out a partner who is no longer a functioning participant in the business?
Bottom Line: Before I address your specific situation I’d like to take a step back about business formation with business partners. First and foremost I don’t believe in new businesses being started with equitable partners. I believe that young companies benefit from someone who has a majority stake and can make decisions if there are disagreements about the direction of a company. That being said let’s dig into your situation.
I’m unclear whether you’re 50-50 partners or if your business partner has a majority stake. In any event here’s what I’d suggest you consider…
First protect your existing successful business. It’s great news that you’re profitable and growing. It’s unfortunate that you’re increasingly at odds with your business partner who is seemingly not operating in the best interest of the company but your first priority should be to not allow the chasm between the two of you to impact the business itself. So along those lines I’d look to compromise.
You’d mentioned that your partner wants to spend while you’d like save, invest and add personal. How about meeting him halfway? Can you take half of free cash flow and execute a piece of each of your strategies? Next up buying out your partner.
It’s important to remember that you don’t have to completely buyout your business partner all at once. All you need is 50.1% of the business interest to retain 100% of the day to day decision making. So I’d start there. How much do you own now? Find out what your partner wants for interest in the business to get you to 50.1% ownership. Once you’ve accomplished that level of ownership you could eventually pursue the rest of the company if that’s desired.
In terms of what a young company is worth… A standard multiple is about 4.5 to 5 times free cash flow. So for example: If 1% of your business produces $1 in free cash flow per year that’s be worth $4.50 to $5.
I hope that’s helpful and best wishes on taking these next big steps in your business.
If you have a topic or question you’d like me to address email me: firstname.lastname@example.org
Good news: How much more recent college grads earn per year – Bad news: many screwed up their degree choice:
Bottom Line: We know historically that have a college degree leads to much greater lifetime income (than those without one). What about in today’s economy though?
New Research has shown that it’s still very much the case in today’s economy. The PewResearchCenter found the following of recent college grads (defined as those between 25-32 year of age):
- The average annual income is $17,500 higher for recent college grads than non-grads
So clearly it’s still well worth pursuing the college degree for the average young adult. It’s not all positive though.
- 37% of recent college grads would pursue a different degree if they could start over
So you still have more than a third that have found that they can’t obtain satisfactory employment based upon their degree. This gets back to what has changed structurally in recent years. You do need to be intentional in your area of study to ensure that it translates into a viable career. I like to say that you should major in what you’ll pursue a career in and minor in what you otherwise enjoy if its different. Make that your hobby to your well paying profession.
Distressed property sales are back to pre housing crisis levels:
Bottom Line: Over the past few years I stated that I don’t really care about the foreclosure sale numbers. The real number I’m interested in is new foreclosure filing number. That’s instructive with regard to the current state of distressed property. The foreclosures that have been sold were often in the pipeline for years. I do finally care about foreclosure sales numbers because we just reached a milestone.
In reviewing the most recent foreclosure sales data, the percentage of homes listed and being sold as distressed property (combination of short-sales & foreclosures) is at its lowest level since the 4th quarter of 2007. That happens to be just before that housing crisis began in earnest.
While our real-estate market in South Florida peaked in May of 2006, nationally the downturn didn’t hit until November of 2007. In other words, distressed real-estate is back to somewhat healthy levels.
This means that the great distressed property deals are likely few and far between these days and if you find a great value on distressed property you’ll probably have competition to purchase the property. This also means that if your community had been hard hit by distressed property sales and had been keeping home values low – you may finally see your community begin to take a turn higher.
They've doubled it again - mobile data speed:
Bottom Line: So you’re about to see the next big thing in mobile service advertised by Verizon. Verizon will soon be the first service provider to rollout the next generation of mobile speed that is literally twice as fast as 4G LTE. It’s called XLTE (btw, why’d they skip 5-9 and go straight to 10?).
With the next two months the rollout should begin. Verizon has identified the first cities that will receive the new super fast service. They haven’t announced those cities just yet but know this… Even when we do get the higher speed service in our area, you may not see any difference at all. Just because XLTE may occur doesn’t mean that your device is capable of operating at that speed. In other words most people will have to wait for next generation mobile devices that will be capable of running on twice the speed.
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WJNO Financial Analyst & Co-Host for The Palm Beaches’ Morning Rush
I work every day to keep you ahead of the curve on the crazy state of the economy, business, investments and technology.
My motto: Passion plus talent is unstoppable.
My faith: Don’t worry I don’t use the mic to preach but… I firmly believe that without God in our lives happiness will never be found. I believe that many of our societal failures have resulted from a general willingness to distance ourselves from our founding values while embracing political correctness.
I'm in my 19th year with iHeartMedia and 11th in South Florida. With my father as inspiration, I started investing in the stock market when I was 11 and co-founded a smoothie company at 18. The highlights of my radio career have been serving as a fill-in for Sean Hannity.
I've made my share of mistakes along the way as well. I shape my perspective from success and failure to provide you with a truly objective picture of business and money in your world. Business and investing are passions of mine. Some read Dean Koontz... I read financial reports.