We often talk about the challenges to buy equity, however it’s important to acknowledge there are significant challenges for the seller – whether it’s in a transition to retirement, or if the parties will be working alongside each other for years to come.
We worked with a business recently that has one owner and is introducing equity to another party. Currently, the 100% owner doesn’t have to answer to anybody else – for example a conference overseas or a home office renovation. He does the bookkeeping, the payroll, the pay reviews, all the management decisions.
As part of our discussions around the first 10% equity sale, it came with conditions. Budgets for travel and conferences, regular financial reporting, and partners meetings. This isn’t a passive 10%, it’s a diversifying key person risk, back-up responsible manager territory. We always suggest working through roles and responsibilities, and understanding when, if at all, roles changes. This helps understand who makes decisions, what decisions need to be made together and reduces risk of conflict in the future.
If you’d like to talk to someone about how you can manage more than just the finances on a sale of equity, contact us for a free discovery call.
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