Buy In And Lose Out

Why does Dave think that Michelle shouldn't buy into being a partner in her small business?

QUESTION: Michelle was approached by her employer to become a partner. If she agrees, how does she determine a fair rate to buy in? She also feels like if she doesn’t do it, it will halt her career. Dave wants her to put the brakes on.

ANSWER: I wouldn’t do it. In a small business setting, there are two people in your situation. They are the person who has controlling interest, and the person who is screwed. It’s that simple. If you put money in there, you have absolutely no control and no say so except for your influence. Legally, unless you own 51 percent, you do not have a say.

I think it’s a noble intent on the part of this other person, but in the event of a disagreement, you lose. You put money in it, and no one wants to buy your share, and you can’t get your money back out. I would much prefer, rather than writing a check to these people to get ownership, for them to agree to start sharing portions of the profit with you.

You wouldn’t leave your share of this firm to your children, so it’s not really an asset, and yet you are talking about paying money for it. I don’t think they are out to get you or are doing this with ill intent, but it’s a screwy arrangement. I’ve seen many situations where this was handled poorly and the whole thing blew up.

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