Mark, As you can tell from all the great replies, there are many different ways to do this.
Speaking from past experience, one of the best advice that I had received, was that the folks going into a partnership should negotiate and come to an agreement on Partnership Termination Terms and Conditions, PRIOR to getting into the Partnership. It sounds corny, but believe me, all the time invested upfront on this difficult topic pays off for everyone when the options are exercised. However in this particular case, it is hindsight. Having said that, you have a quiet a few good things going for you. 1. It is an amicable split. 2. Your Partner has a target goal and plan he is working for. 3. You recognize that there are two items to be valued, money and sweat equity. I can see from the other replies that you are getting great advice on the different technical formulas for valuation. I would like to make a very different kind of suggestion, that may work out to be beneficial for both. Needless to say, you and your partner will have to explore and customize whatever agreement that you come up with. If you forget about the technical aspect of the business, and just evaluate it in terms of a generic business, then below listed concepts would apply as long as the two of you understand what the other wants to achieve. I am suspecting that, your partner does not need to pull out the money that he has put into the business, also going to make the assumption that the business is the growing stage and not yet generating positive free cash flow..(positive free cash flow is not the same as profit). Another key business principle, which is often mis-understood is that Compensation and Ownership are two very different things, and they DO NOT have to be interdependent. In my case, prior to getting into the partnership, we negotiated, Ownership (percentage), Compensation agreement, and Termination Terms and conditions. Compensation agreement is based on the principle that the salary/compensation was going to be the same as to what it would cost to higher a similarly qualified employee to fulfill that position. (Adjusted up or down based on the affordability and the company finances). If a partner decided to go silent, (i.e. not work in the business on a day to day basis), then they were not entitled to the salary, only to the profit distributions if any. Any monies invested into the company, were either in form a interest bearing loan (in some cases we accrued the interest and deferred paying it, because we did not have the $$), or the initial 'purchase' of the company stock, which translated into the ownership stake. As to sweat equity, an equalizer formula between the partners can be agreed to, it really doesn't matter what it is as long as it is equitable and both of you agree to it. Based on the above, and the specific needs of you and your partner, you could easily work out a 'Buy Out' plan which would provide a return on investment for him, while providing self financing from the company's growth for you. (e.g. I will use 1% of the company's gross revenues (of 10% of gross profits) to purchase 1/5th of your share, on an annual basis. Or something similar, so that over a defined period of time, you are able to purchase his shares (ownership stake) and he is able to get more $ for it as the company grows) As to the sweat equity, if you both feel that you have put in an equal amount, then the above formula should provide a decent return on the original investment. If you two believe that the sweat equity was not equal, then the above formula should be adjusted to be more favorable for your partner. Overall, the concept is that, most folks who start small business do that so as to get a return on the investment down the road when the business is doing well. Just because the partner is leaving to focus on other things, and there is no desperate need for cash, especially in amicable separations, there is nothing which says that one cannot still continue towards the original goal...to provide a good return on original investment a little bit further down the road when the business is healthy. Faisal Imtiaz SnappyDSL.net -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Mark Nash Sent: Thursday, April 27, 2006 6:52 PM To: WISPA General List Subject: Re: [WISPA] Business Value Thanks Marlon... For the record, it's not a rough split between me and my partner. He's got a more profitable business going, he's put up money for the wireless business, he's 53 and going to retire when he's 55, so he wants to focus on his other business. That's what I would do if I were him. The money he put in is easy to account for and pay back, but he has also put in a considerable amount of unpaid time and he'd like to realize some benefit from that, and I should honor that in the split. Makes sense. So I'm trying to figure out what's reasonable to offer for his part in all of this. Mark Nash Network Engineer UnwiredOnline.Net 350 Holly Street Junction City, OR 97448 http://www.uwol.net 541-998-5555 541-998-5599 fax ----- Original Message ----- From: "Marlon K. Schafer (509) 982-2181" <[EMAIL PROTECTED]> To: "WISPA General List" <firstname.lastname@example.org> Sent: Thursday, April 27, 2006 3:45 PM Subject: Re: [WISPA] Business Value > Hi Mark, > > I don't have time to get into the deep details right now. I can probably > help with this if you'd like. I've done some valuations based on income, > customer base etc. > > Standard business stuff would put your company value at 1.2 to 2x annual > earnings. OR 3 to 5 x annual profit (probably not much of that if you're > growing well). > > With a wisp, it gets more complicated because most wisps are growing fast > and are just starting to get into the profit mode. So the value of the > company won't even hit most guys for a couple more years. shrug > > I've also seen WISPs get paid for the number of homes passed in addition > to the above. > > The last valuation I did I took the number of customers possible on the > hardware installed, cut that down to more reasonable numbers (100 users > per ap), figured a moderate growth rate (max of 4 per day after 3 years) > and came up with an expected customer base in 36 months. That's the point > that I put a value on the company. I used 1.5x annual earnings. At this > point the company would have been HUGELY profitable though. (started out > with 1 install per day, ramped that up by 1 every 6 months or so) *I* > think I had a reasonable growth rate (market size was nearly 1,000,000 > people much of which had NO broadband) and left room for several > competitors to gain market share. > > On a partnership breakup it gets more difficult. No one probably has any > money (or they'd not be fighting so much in the first place). One guy > usually put up all the funding and the other one did all of the work. > There are hard feelings and often friendships on the line. In those cases > about all you can do is to take the income today and use that for the > value. Or one partner can agree to go silent and let the other one carry > on with business. Tough stuff either way. > > Hope that helps. Feel free to call if you'd like to talk it over some > more. > Marlon > (509) 982-2181 Equipment sales > (408) 907-6910 (Vonage) Consulting services > 42846865 (icq) And I run my own wisp! > 22.214.171.124 (net meeting) > www.odessaoffice.com/wireless > www.odessaoffice.com/marlon/cam > > > > ----- Original Message ----- > From: "Mark Nash" <[EMAIL PROTECTED]> > To: "WISPA General List" <email@example.com> > Sent: Thursday, April 27, 2006 7:31 AM > Subject: [WISPA] Business Value > > >>I may be splitting with my partner in the coming months. We'll have to >>come >> up with a buy-out agreement. Has anyone got experience with valuating >> WISP >> businesses? >> >> Mark Nash >> Network Engineer >> UnwiredOnline.Net >> 350 Holly Street >> Junction City, OR 97448 >> http://www.uwol.net >> 541-998-5555 >> 541-998-5599 fax >> >> >> -- >> WISPA Wireless List: firstname.lastname@example.org >> >> Subscribe/Unsubscribe: >> http://lists.wispa.org/mailman/listinfo/wireless >> >> Archives: http://lists.wispa.org/pipermail/wireless/ > > -- > WISPA Wireless List: email@example.com > > Subscribe/Unsubscribe: > http://lists.wispa.org/mailman/listinfo/wireless > > Archives: http://lists.wispa.org/pipermail/wireless/ > -- WISPA Wireless List: firstname.lastname@example.org Subscribe/Unsubscribe: http://lists.wispa.org/mailman/listinfo/wireless Archives: http://lists.wispa.org/pipermail/wireless/ -- WISPA Wireless List: email@example.com Subscribe/Unsubscribe: http://lists.wispa.org/mailman/listinfo/wireless Archives: http://lists.wispa.org/pipermail/wireless/