Key Risks, Financing Realities, and How to Structure a Partnership the Smart Way
This week I would like to talk about a question I received few years ago, Kurt sent in a great question:
“I’ve recently approached a local business owner about partnering—me buying into the business. He might actually be considering it. How do I evaluate this opportunity and what financing options exist?”
If you’re thinking about becoming a minority partner in an existing business, there are unique risks, structural challenges, and financing limits you need to understand before moving forward.
Let’s break it down. https://youtu.be/UNZavOxgg74
1. Buying Into an Existing Business Usually Means Buying Equity Only
If a business is already operating and has financing in place, you aren’t buying the whole business. You’re buying shares representing the equity, not the debt.
Example:
Business value: $400,000
Existing debt: $300,000
Equity: $100,000
If you buy 50% of the business, you aren’t responsible for half the debt—the financing is already baked in. You’re simply buying $50,000 worth of shares.
2. You Probably Won’t Get Outside Financing
Here’s a reality many buyers don’t like hearing:
No bank lends money to buy shares in a small business.
The only exceptions:
Personal loans based on your income
A personal line of credit
Loans from family or friends
Rare cases where the seller finances the buy-in
If you’re planning to quit your job to join the business, remember:
Arrange any personal financing BEFORE you leave your job.
Banks lend based on your personal income—not projected future business earnings.
3. The Big Danger: Becoming a Minority Shareholder
This is the part most people underestimate.
Being a minority shareholder is a lot like getting married—but without the romance.
Why?
Because the majority owner can still outvote you on every major decision unless you create a detailed partnership agreement outlining:
Voting rights
Reserved matters requiring unanimous consent
Profit distribution
Decision-making authority
Buy-sell clauses
Dispute resolution processes
If your relationship relies on the contract regularly, it means conflict already exists.
And conflict usually stems from one critical issue…
4. Partnerships Fail When Roles Aren’t Clearly Defined
I’ve seen many partnerships explode simply because both partners believed they should control the same areas of the business.
Successful partnerships have:
Clear job descriptions
Each partner knows exactly what they are responsible for.
Formal organizational structure
Just like a larger company, the business has a defined hierarchy and workflow.
Boundaries
Partners don’t meddle in each other’s domains.
I recently worked with a partnership where:
One partner was CFO and President
The other was Head of Operations
They rarely stepped into each other’s lanes. That structure is what made the partnership last.
5. Buying Into Someone Else’s Existing Business Is Especially Risky
Unlike starting a partnership from scratch, you’re joining a business that is:
Already established
Already operating under one person’s control
Already influenced by one owner’s habits, assumptions, and decision-making style
Here’s the key question:
Is the current owner emotionally mature and business-savvy enough to share control?
If they’ve been the sole decision-maker for years, shifting to shared ownership may be harder than you think.
6. Multi-Year Transitions Require Even More Structure
Some people structure buy-ins over several years. For example:
Year 1: Buyer purchases 20%
Year 2: Company pays a dividend
Buyer uses dividend to buy another 20%
Over several years, ownership flips
This only works when partners have:
Policies & procedures
Job descriptions
An organizational chart
Defined responsibilities
A clear shareholder agreement
Without that structure, the partnership turns into chaos—and somebody eventually wants out.
7. My Final Advice
If you want the full argument, I lay it out in detail in my book Invest Local:
Being a minority shareholder is rarely a good idea
The only exception is when all shareholders are active operators, which applies in your case
But proceed carefully.
Evaluate the owner, the business, the structure, and—most importantly—the relationship.
And remember:
Partnerships are easier to get into than to get out of.
If you want to learn more about creative private investments, check out my book Invest Local — available on Amazon or as a PDF from DCBBooklist.com .
👉 Want deeper dives like this? Join my email list at DavidCBarnettList.com for early access to videos, insights, and 7 free bonus gifts.
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