Partnership gone wrong

[Barb CW]

We are just over a month and a half in with our new laundromat. We went in with another couple and we sat down going over everything that needed to be done prior and what it would entail to get it up and running (it was pretty run down). Everyone was in Agreement that it was all hands on deck to get things done before the new machines come in October. The problem is, now they don’t want to put time in. The one partner has only stopped in to clean 4 times since the purchase.
My thoughts have always been it’s time or money that a partner brings to the table. How would you figure out a percentage of what they should put in financially if they are choosing not to put in any time? Or am I missing something else? Also note because of the inspection done a week after we purchased, it could be potentially cancelled in 2 weeks because of the report we received a few weeks after we purchase. My husband has been working diligently to get those fixed before the deadline.
Thanks!

[Alex Alleva]

I would assume there is some type of operating agreement in the LLC you formed. It should outline responsibilities etc.

[Barb CW]

Thank you Alex. We do and communication is a huge issue. They say they will do something and then not follow through, then tell us it is our choice we are putting so much time into it. We are going to go through a mediation soon to see if that will help.

[Mason Barker]

I’m sorry that you are going through this. Partnership issues can be rough. If it’s any consolation I had huge issues with one of my partners in the past but we managed to work through them and realized that we actually balance each other out very well. This allowed us to embrace our differences as strengths, rather than fight constantly. We are now lifelong friends and partners in five businesses. The Visionary/Integrator concept really helped us: https://www.eosworldwide.com/blog/visionaries-and-integrators-are-essential-part-one

Can you buy them out? If not, I think it would be fair to agree on an hourly rate for your time, track everyone’s hours and then have them pay you for the difference between your hours and theirs. I have a number of companies with partners where we have equal equity but I do all of the work and I just track my time and have the company pay me an agreed upon rate. It does eat into the cashflow, but my partners are willing to trade that for being 100% passive. It works for me because I have the time and like the extra cashflow.

If they can’t afford to pay you or don’t want to you could look into changing ownership percentages and updating your agreement to reflect that they will be passive but you will have more equity. With my businesses we chose not to go this route because this is harder to change than just paying me. For example, if I get busy and one of my other partners suddenly has time then maybe they will run one of the businesses for a season. If we went the equity route it would be hard to figure out what would be fair in this case. Shouldn’t I keep the extra equity for the work I put in before? But shouldn’t they also get extra equity? It gets complicated.

I’m not an attorney and this isn’t legal advice, just some thoughts from my personal experience.

[Barb CW]

Thank you Mason. When I had mentioned before that it was time or money between partnerships they said it was our choice to put this much time in. It’s hard to get through this part when we have a deadline to get jobs done in order to even stay open. When we started we all agreed it was all hands on deck so to speak. Everything needed to be done by October for when the new machines came; then the deadline shortened because of the inspection.
I would like to buy them out for just the money they put in upfront to buy the building and for the time they put in. I don’t feel it’s fair to give them half of what the value is worth since they haven’t put in the time (I am not a lawyer so I don’t know what rights they have, except a plus for us they are not listed on the mortgage, just the business loan). It was already mentioned about changing the percentage of ownership and they didn’t like that because they knew their share would be lower. I will look at that concept you posted. Thanks!

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