MBA1430 Q&A Wednesday: Not enough cashflow to pay my cofounder a salary. Should I buy him out?

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Hey O welcome to the $100 RMBA show, the business podcast that keeps on rocking throughout 2020 and beyond with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the $100 MBA, a complete business training and community online. Happy New Year to all our listeners. It's 2020, a whole new decade. Let's make this one the best one ever. Today's episode is a Q and A Wednesday episode. In our Q and A Wednesday episodes I answer a question from one of you, one of our listeners. If you you want to ask just email me over@omar00mba.net I'll make sure to answer your question right here on the show. Today's question is from Mark and Mark has a very interesting question. He's the co founder of a small software house. His co founder hasn't been working at the company full time for some time now and there's no hard feelings or anything but the co founder is looking for work but there's just not enough cash flow in the business to pay him a full time salary. Now at the start of the business the co founder did put in the time and put up his money and he even helps a few hours a week for free. Right now, there's just not enough cash flow or work to have two paid full time co founders. The question is, hey, should I wait until the business grows a little bit or should I buy out his shares right now and call it even? Steven, this is a really good question because this is the reality for a lot of companies. They just can't afford to have everybody on full time salary, especially the co founders. And if somebody steps away for some time and wants to jump back in, it makes it even more complicated because there's just not enough work for them. So in today's episode, I'm going to break down how I believe Marek should approach this problem, approach this challenge to make sure that everybody in the equation gets a fair deal. So let's get into it. Let's get down to business. So Marek is in a tough situation here. He doesn't have enough work or cash flow to pay two co founders, himself and his co founder a full time salary. His GoFundMe has been away for some time, hasn't been able to dedicate full time work, and now needs the full time work and would like to jump in, but there's just not enough money. What's the fair thing to do? Buy out his shares right now or should they wait till the business grows a little bit more and then buy at the shares? Here's what I think. Personally, Marek. I think you should really have an open and honest conversation with your co founder, go out for dinner with this intention that you want to solve this issue, you want to settle things, so it's fair for everybody. Sometimes when it comes to money, we play things very close to the chess. We don't really share what we really believe or want. So what you want to do is before you have this dinner and this conversation, preface it with saying, hey, we're going to put all the cards on the table. Everybody's going to be honest and just say what they want, what their ideal situation is, and we'll meet somewhere so we make sure that everybody's happy, you know, meet somewhere in the middle, you know, in terms of the agreement. But you have to come at that conversation with that type of intention that everybody's going to just be honest, that you have the license to be as honest as possible. Having said that, you want to hear from your co founder first. Things are not really going to change for you right now because you are the one that's been running the business for some time, being paid to do so. And because you've been at the helm, you Know you have somewhat of a right to understand or have some sort of better understanding of the state of the business right now. So ask your co founder first. Hey, what do you need? What situation are you in right now? What's the ideal resolution for you? You might be surprised with what you hear. You don't know everybody's financial situation. He might come up to you and say, hey, you know what, I want to cash out. Why don't you buy my shares right now, whatever they're worth, and then I can go out and try to find a full time job and you guys, you can carry on with his business and best of luck, he might say, no, I want to keep my shares and I want to be an investor. Or he might have a totally different suggestion altogether. But the point is that you got to hear from him. You, you might be surprised about what he wants and what he needs. Now having said that, before you get to this meeting, you got to know what you want. What do you want out of this situation? If you can have it any way you want it, what would you want? Would you like to have 100% ownership of the business? Do you like having the partnership and want to keep the partnership, but work out in terms of how many shares and all that kind of stuff? Are you interested in splitting the pie one more time and getting another investor so that your co founder can come in and work full time? You have to have a clear understanding of what you want. You can't have a resolution if you don't know what you want out of the situation. So come to the dinner, come to the discussion with a pretty good understanding of this is my ideal situation and whatever that is, be prepared to actually implement that solution. So if your ideal situation is I want to buy his shares right now and be 100% the owner of this business, then have a plan to buy out his shares. Do you have that kind of cash? Do you have a payment plan in mind? Have some sort of plan that makes the implementation of your idea easier. Now once you hear from your co founder, the person that you've built this business with, and you know where he stands, find out how close your plan is to his and kind of share your plan or what you want out of this situation in the context of his plan. So it's like, hey, what I want, my plan is, is very close to what you want. The only difference is this. Now if it's really different from what you want, then you could just be honest. Hey, this is very different from what I perceived to be what is the best, you know, solution? Let's see what the differences are. And you could just say this is what I want out of this situation. Let's see if we can meet somewhere halfway or think of a solution together. Just have a solution oriented situation. You want to make this as amicable as possible. It sounds like you don't have any kind of major issues, you're not looking for any kind of legal defense or something like that, which is great. You also want to make sure that you're being fair, that you're actually giving everybody what they deserve. In your situation, it sounds like you want to keep the business alive, you want to keep growing it, but you just simply don't have the cash flow to pay two salaries. And you've been running the business for some time now without the co founders, you know, full time help and therefore you have to be compensated for that so that the business keeps going. But be mindful of that. Maybe your co founder's solution will be something along the lines of selling the business. And in his perspective or in his side of things, buying his shares and selling the business is the same result for him. So you want to make sure that that's clear and that if your solution is to buy his shares right now or later down the line, that's totally cool too. But the point of today's lesson is you have to hear what the other party wants while being fully prepared about what you want so that you can meet somewhere in the middle so you can actually negotiate something that's very, very fair for both parties. If you feel like it would be helpful, have a third person in this discussion that will not benefit whatsoever from either result. Somebody that maybe has been through this before or is in business or is a co founder themselves somewhere else. It might be helpful to get their perspective and to iron a few things out Today.

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To wrap up today's lesson, when it comes to money, when it comes to co founders, when it comes to people's time and effort investments, it's sensitive. We want to make sure that we're sensitive to each other and we hear each other out. Everybody wants to be heard in life and in business as well. So make sure everybody has the opportunity to express what their needs are, what they want, their concerns, all that kind of stuff. You want to listen as much as possible so. So that you can be able to understand how you can reply with grace and with a way that you get what you want while they get what they want. It's never gonna be perfect for both sides. It's very rare when both people get the exact situation they want. But you wanna get as close as possible on both sides and that's why the open, honest conversation is so important. I hope that helps. Marek answer your question. If you have a question, you're listening right now to the show and like, hey, I have a question, email me over at omar00mba net I'll make sure I answ answer your question right here on the show. We've been answering our listener questions for years and have helped hundreds of businesses get through a tough situation or get unstuck. Thank you so much for listening to the 100 MBA Show. Hit subscribe right now and don't forget to leave us an itunes rating and review. By leaving us on itunes rating and review, you enter our weekly random draw we call free ride Friday. We give away a lifetime membership to one of our programs. You can win a free ride just leave us an itunes rating and review and listen in on Friday to see if you won. It's that simple. It's our way to say thanks for leaving us love on itunes. Before I go, I want to leave you with this. A business is an asset, so even a part of business is an asset. So even if you're small right now, you're not making millions of dollars and you're looking to buy somebody's share out or you're trying to sell your business, it's probably still a significant amount because it's the potential this business could bring in. There are plenty of people that want to buy businesses that are that stage right before they take off. And if you've invested and had, you know, some good foundation into your business, those investments are part of the asset that we're talking about here. This is why we become entrepreneurs. This is why we build businesses because they're great assets. This is how we build wealth in the world. We have a commodity. We have something that we could leverage over time and that's what makes businesses so amazing. Thank you so much for listening to the Hunter RBA show. I'll check you in tomorrow's episode. I'll see you then. Take care.

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