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So, we purchased two gas stations (convenience stores) and the RV dealership. At the time, banks were just throwing money at people without much due diligence (it seemed like) so it was very easy for us to get 100% loans to purchase these businesses. The first year, no problems. I did not make any money and was told this was because of the need to streamline processes. The second year, I was asked to invest $120k for expanded inventory. I did. Not long after that, my friend quits his CEO job (making $175,000/yr) so he can “focus on the business”. I was ok with that because I thought it was best he devote his time to these new business ventures……later, I would find out he had been fired. That year, surprise surprise, my partner reported he made an income of $120,000 to pay for his full time management of the business.
I have invested in a couple of startup that have not gone as well as I expected. I have learned something from it that I used to apply to cash generating businesses like gas station with attached convenience store or its sibling, the liquor store.
First have a proper legal agreement on the partnership, each person’s share and contribution and how much is each person responsible for the loan. Make sure that the banking at a bank is done where you know the bank. Have statements come to you each month, no exceptions. You should have the option to check the transactions and balances online any time. A copy of the daily sales should come to you by email every day. A copy of the invoices should be sent to you whenever purchases are made. You won’t have time to look at every daily report or transaction but even glancing at them and going through the monthly bank statement each month will give you an idea if there is funds as expected from the income and expenses. Have a quarterly meeting to discuss the income, expense and profits and see if it matches the bank records.
Any check over a certain amount should require your signature in addition to the manager / other partner for it to be valid. By taking precautions one can run a successful small business like a gas station, liquor store, laundromat etc. But leaving it to someone and not having any records is inviting trouble and embezzlement.
These are all excellent lessons I have learned.......unfortunately, through this bad life experience.
Even though we were supposed 50/50 partners in the businesses, the bank had zero interest in going after him to pay down the bank loans. We had both personally guaranteed them. He eventually filed for bankruptcy protection but the bank was only interested in coming after me, even before he filed for Chapter 7. The bank said it was because our income difference was so large, they felt I was the "low hanging fruit" and it would be easier to expect me to pay off the loan amounts.
So, after that experience, another friend wanted me to help him open a restaraunt franchise a few years later. I said no but I still listened to his proposition. What ended any possibility of a deal was when I told him I would not get a loan from the bank unless the bank would allow me to ONLY be responsible for my 50% proportion. Of course they told him "no" and I said "there's no way in ************************ IM going down that road again".
Whats interesting is, in my medical practice, our loans (for real estate) are set up like that with the bank. For instance, we just purchased a $2M property. My loan documents allow for 20% responsibity if my partners were to default and I am left holding the bag
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