For example, if you want to be more of a silent partner and leave the majority of operations up to the existing owners of the business, you wouldn’t want to partner with someone who was planning to retire in a year. On the other hand, if you want to take an active role, identify skills and knowledge that would make you valuable to the business in the role you want. Make a list of the skills and experience you have that would help the existing owners. They will likely be looking for a complimentary fit – someone who can bring in additional skills or expertise that they don’t already have.
Generally, you can talk to people you know in the industry to get an idea of various businesses in need of additional investment or open to additional partners. It may also be that you already know someone (a friend or family member, for example) who is looking to add a partner to their business. Even if you know the existing owners well, do the same research on the business as you would if you were contemplating partnering with a stranger.
This research will continue after you start talking to the existing business owners about buying a percentage of the business. Ask the existing business owners if you can review their financial and business records, or hire an accountant to audit these records for you.
This is a basic, introductory letter. Keep it to a page, and encourage them to get back in touch with you if they want to discuss things further. Your tone should be friendly, but professional. If you want to be a little more aggressive, you can let them know that you’ll be calling on a particular date to follow up. Highlight the benefits you could bring to the business, as well as what attracted you to the business in the first place. Keep your focus on how you can help the business continue to grow and succeed.
Before you sink money into a business, you want to know exactly how much that business is worth. You also need an objective assessment of that business’s potential. While the existing owners may provide you with their own valuation, it may be subject to bias. Reach out to leaders in the industry to get recommendations for a business appraiser. Look for someone who has a professional designation, such as CBA (Certified Business Appraiser). [6] X Research source
Have all points of your offer in writing, including the amount of money you’re willing to invest and the role you want to play in the business (if any). Bring a copy of your résumé and any additional information that will back up your statements about your skills and expertise. Meet in a neutral location where no one will be unduly distracted by business responsibilities during the discussion.
If they want additional documentation or verifications from you, set a date to get that information to them. Typically, small business owners are willing to take on another partner either because the business is rapidly expanding, or because they are looking to retire soon and want someone to take over the business when they do. Make sure you find out their motivations for allowing you to buy a percentage of the business.
For example, suppose you are an expert in social media marketing. The business doesn’t have much of an online presence at all apart from a website that was last updated 5 years ago. If you are willing to take over their online marketing, you could add tremendous growth potential.
For example, suppose you want to buy 25 percent of a coffee shop, but you don’t want to be involved with the actual operations. The existing owners want you to work in the coffee shop at least 1 day a week. If you can’t do that, then you might counter that you would be willing to take 20 percent without involvement.
If you reach an agreement with the existing owners, make sure you’re all on the same page. It’s entirely possible that each person walked out of the meeting with a different understanding of what would happen next. Even if you didn’t come to any agreement, writing out the points of the meeting and the areas where you disagreed can help you find a compromise that could lead to a deal.
If the business is currently operating as a sole proprietorship or a partnership, have all the owners meet with an attorney who specializes in small business organizations. They can discuss your options with you and help you draft the documents you’ll need. If you have experience with different types of business entities, share your experience with the other owners. Let them know which you prefer and why.
Particularly if you’re going into a small business or working with people you already know well, it may be tempting to skip a formal, written agreement. However, you still want to protect your interests, even if you don’t foresee any issues coming up. This agreement should also state what will happen if an owner decides to leave the partnership.
If you don’t understand the meaning of a clause, ask the existing owners what they think it means. See if you can word the clause so that it more clearly reflects everyone’s intent.
Make copies of the signed, notarized agreement for the business files and the personal records of each owner. Only give money to the business after all owners have signed the agreement.
Typically, you must file an amendment document that states the changes that were made to the existing business. This document sets forth the new ownership percentages and contact information for all owners. Check deadlines with the office of your state’s secretary of state. Amending documents usually must be filed within 30 days of the date the change was made, but some states may have shorter deadlines.
