Folks, last night at family Easter Dinner my cousin in-law approached me in becoming a silent partner investor in a auto repair business he has the opportunity to buy.

To make a long story short here's the background info:

- it is a long standing established repair garage with a good customer base and a few long term fleet maintenance contracts
- they are very busy.....booking up to a month in advance
- the owner is retiring and has offered the business to my cousin in-law (journeyman mechanic)
- the owner will stay on for however long it takes to complete a smooth transition
- cousin needs $125,000.00......this would give me 50% ownership.......selling price is $300,000.00 with owner to finance $50,000.00
- my benefit is I can continue working on my own job / career and have this on the side.........accountant is staying on to look after the paperwork

I currently have a registered business, but have done nothing with it as I'm waiting to go consulting. Can I use my lines of credit from that to finance? Do Ed and I have to / should register another business under both our names?

Help! I'm kind of excited and can't think straight.


Any words of wisdom on partnership business would be much appreciated. Let's just say, my cousin in-law is the only mechanic that I trusted touching my '98.

 

I would tell him thanks, but no thanks. I have a few reasons.

Partnerships don't usually last long and end badly - and having a family connection usually makes it end even uglier.

This isn't spare money you have laying around, you are going significantly in the hole for this. If it goes down you are still on the hook for 125k.

Technically you have a half share, but you won't have any control over the success or failure of this business. You said it yourself - somebody else will do the books and your sorta related buddy will be running the shop.

Putting money you don't have (you're borrowing it) into a business you have no day-to-day involvement in (and thus very little control over) is a bad move. Plus if things go wrong it's not just a financial problem, it's a family problem.

 

Nail was struck centered and hard there.

 

Ditto,

I am involved in a "family" business, it is not the most ideal situation, I'll leave it at that

Plus, isn't 50% a little rich to consider "silent"? If he was looking for $10 or $20K I would consider it, I think he needs to looking the SBA, maybe get a business loan on his own.
Just my opinion.

 

Oh, and I would add to wannadiesels post:
Not if,........... WHEN.

 

NEVER, NEVER, NEVER, ever go into a 50/50 partnership. Perhaps a 51/49 with you having the 51% (or more) ownership, but equal shares are bad news. The others already gave you good advice. If you are putting up that kind of money you need to have some regular involvement and also you must be in a financial position to be able to afford to lose all that money if things go bad.
I am not saying this is a bad investment, but there is a LOT of danger with this kind of family business. (Need a red flag smiley)
Good luck.

 

I agree with the rest its a bad idea.
A while back I was offered a auto repair business through a friend for around 170k...
The business had plenty of clientel, decent location, and good reputation but for the price of the business no real property was there.

If you really want to invest the 125k I would suggest you open an auto repair business yourself and hire your brother in law or whoever it is as a mechanic there and see how it goes....this way your always in charge.

 

NO, NO and NO! Been there, done that.....and, as in MOST cases, it didn't work. And I agree that that's a lot of $$$ for no control.

 

Thanks for all the honest replys - where else would one get them other than here on the DTR. I started thinking about all that was said here while driving to my grandmother's for more food this weekend.

As you folks have stated, it is a large personal expenditure and I do have my own ideas on the running of things. If financing was solely through a limited company then fine, but the problem is the bank will probably want 10-15% up front - that'll be a personal injection that I just don't have to lose right now. Especially while only working my regular job and on hold to go consulting.

I do have to figure something out though. I'm tired of working my rear end off while someone else lines their pockets.