Biz partner ready to retire before me.... any suggestions?

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I have a 50/50 biz partner of 18 years. I am 45 and he is 50. He is financially more ready to retire than I am as his home and all debt is paid. I still have a mortgage. We have a C Corp set up and we own 4 cellular locations as authorized agents for a large cellular provider.

We each draw about 175k annually with salary and bonus and have over the last 4 years. 18 years ago we started out at 30k each with one storefront.

We have an ASM that travels to the 4 stores and is basically our COO. He manages each locations managers and staff directly. Currently I handle marketing which has recently been taken over by another agency that does a wonderful job. My partner oversees inventory which amounts to about 500k at any given time, plus or minus 500k depending on the season.

We are looking at slowly stepping away physically from the business and paying our ASM a larger salary to take over our physical jobs, but we would still be the board and principal officers, but physically much less involved so that we can move on into other business ventures to provide retirement income. Having a mortgage, I am in more need of a full time gig, than my partner. I am going to be taking my real estate exams to pursue this field for retirement.

My thoughts are taking 15k off of each of our salaries and giving them to our ASM. This would bring him from 55k to 85k which is pretty good for small town Iowa. He also has a company car and health benefits etc. This would allow us to keep a good income, and also pursue other careers.

Our industry is somewhat questionable based on several things, and we could see a significant drop in profit over the next several years and we would adjust our draws based on this. We would be able to get weekly and monthly reporting to see trends etc and keep an eye on things, and would still remotely and randomly be on sight to talk with employees etc. If we saw things not working out we would be able to make changes whether it be staffing, marketing etc. If the ASM could not handle the job which is highly unlikely, we would be able to hire a replacement.

My business partner mentioned the other day the he would be willing to take a 50k each cut in pay, and give our ASM the same pay raise to 85k, and put the remaining 70k into a fund annually so that our ASM could eventually use that money to "buy us out", which in my mind makes no sense.... First of all, the cellular provider we are an agent for, does not have a contract with our ASM and does not guarantee us to be able to sell to another person...in fact they would probably just move another agent into our towns and our business would be valueless. I'm trying to be prepared for a conversation with my partner with some facts and wisdom.

What would you do???
 

Edvin

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Hi Justin,

As challenging as the situation is, it is a good problem to have.

Here are my thoughts...
  • No one will run a company like the owner; so, bump in the salary needs to be strategic.

  • I suggest making the salary increase as a bonus, which is tied to KPIs.
    After all, everyone's income depends on due diligence and quality of work.

  • Why do you feel the need to sell the company. Companies hire executive officers to help manage their businesses all the time.

  • If you or your partner want to cashout, then the first step is to determine the value of your business. It easier to talk about numbers than "our baby".

  • How do you expect your ASM to be as effective as you when he is losing two of the company's best employees? Are you giving him enough budget to bring-in equivalent talent? You and your partner throughput is probably equivalent to four people (because of vested interest); so, you must leave enough meat on the bone to replace you.

  • What if the 50k each continues to go into shareholder equity, which can be used to expand the business. Because the ASM will take a more active role, he/she can start thinking about expansion or new revenue streams. The ASM can get 50% of new net revenue that is due to expansion; you and your partner will be there to support and guide him/her as you approve the utilization of shareholder equity.
 
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Edwin,

First of all, thank you for your advice.

I do not think that selling is an option. I think the reality is that it physically is not an option, and I'm pretty certain that my partner will realize this as well after we come up with other solutions. I do like the idea of putting money into shareholder equity to be used for expansion or new revenue streams. I also like the idea of sharing the revenue that could be created by the expansion.

As to the idea of the ASM losing 2 of the best employees, I see where you are coming from. We have really put a lot of weight on the decision making into his hands over the last couple of years to see how he responds etc. He is starting to really make decisions the way we do and has a good handle on the overall operations of the company already. We are typically here to offer support via phone and email, as well as regular visits with employees and managers. The moral support and physical appearance of the "owners" on a weekly basis has been welcoming to the team, no doubt. We would both be able to still offer this connection and would commit to reaching out to the team randomly to encourage good performance etc.

I agree that a strategic bump in salary based on KPI would be a must. He is currently on a bonus structure (as are all employees) that pays out as much as a 30% increase in pay if all goals were met. He is driven by this and does quite well. He would love to "buy in" to the company and "own a piece of the pie", but it really isn't much of an option that is see a solution to.

Again, your ideas are appreciated and noted!

Blessings to you and your family,

Justin
 
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