Buying Out Your Business Partner? Separate Out your Feelings from the Cash Using This Framework and Get the Best Financial Outcome Possible

You and your partner bought an itty biz just 3 months ago, 50–50.

Now, out of the blue, she wants out. You were the operating wizard. She was the marketing genius. You made an awesome team and now you’re feeling betrayed and alone. You’re kicking yourself for not having an operating or buy-sell agreement.

And to make it worse, she wants her money back.

Right now.

Every single penny she put in three months ago.

Intuitively you know that’s f*d up, but you can’t put your finger on it.

Sift out the feelings from the money, and you’ll soon know why.

Of course she can’t just return her ownership as if it was an unopened package of socks at Nordstrom. What she paid (her cost basis) has nothing to do with how much she should get back or when.

Here’s why:

Her departure has instantly made the business worth less.

For one, the money you both put in was used to pay the seller. The cash is gone. To buy out your partner the way she wants you’ll either have to borrow it or draw down the company’s bank balance. Your business is in a weaker financial position now. And weaker is worth less, by definition.

She doesn’t get to damage the business but get paid like she hasn’t.

For another, you now have to hire a marketing genius. You now have to do twice the work you were expecting to do. You are now the only one on the hook for any debt the business is already carrying. Your business is less rich in human resources too. It’s hard to put a price tag on it, but it’s real.

Her ask of 100% of what she paid in, right now, in a lump sum is absurd.

You can argue with her about value, timing, and payment size.

Her cost basis is not the same as the current value of 50% of your itty biz. Her ownership is not liquid, so it’s worth less. How much less is up for debate.

Just because she wants to be paid now doesn’t mean the business can swing it. You just invested a ton of money in inventory. Cash is tight. Even if you weren’t pissed at her, you have to think about the business’ needs first, as though it were your child.

The size of each payment is also not a given. If she wants it all at once, then she gets a smaller amount (see value & timing above). If she can flex on the number and size of payments, maybe you can goose the amount a bit.

Not all dollars are the same, no matter how wishful the thinking.