General Question

drdoombot's avatar

Your business partner wants half of your earnings from a somewhat similar side-business you started on your own: How do you resolve this?

Asked by drdoombot (8135points) June 14th, 2011

Two people, Felicia and Samantha, become business partners and open a daycare center. They split the work evenly, split the expenses and the split the earnings 50–50. The daycare happens to be located in Felicia’s house, but this might not be relevant to the discussion.

This arrangement works well for several years. Felicia decides to go back to school to get a masters in special education for children. After several years of night and weekend school, Felicia gets licensed and starts work with a couple of clients. This requires her to leave during the day for a couple of hours a few times a week.

Samantha has a problem with this. She doesn’t want Felicia leaving in the middle of the day, with only Samantha left to run the daycare in her absence. To resolve this, Felicia hires a licensed babysitter to fill in for her and pays the temp from her own earnings from the daycare business.

Samantha is still not satisfied. She believes that they both got into the childcare business together and that all earnings should be shared. Samantha wants Felicia to give her 50% of the earnings she makes as a special ed teacher. Needless to say, Felicia does not agree.

The question is: how to resolve this disagreement?

Felicia and Samantha are related (a major no-no to get into business with family, I know). The daycare didn’t really have any start-up costs, so it’s not as if one partner can buy out the other. Dissolving the business altogether might cause family problems.

Any and all solutions and advice for this problem are welcome.

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20 Answers

asmonet's avatar

Um, first of all. If the pay for the babysitter is coming out of one partner’s pocket – the other gets no say in terms of the money being spent as it does not affect them.

As for the other job, its not her business, its not their education, time or money – it won’t be their profit.

Felicia needs to GTFO of business with this woman. It’s her location, her education, as far as I’m concerned Samantha is a glorified helper peeved she doesn’t get the money from her friend working her ass off.

This is one of those “Bitch, please.” moments in life.

Blueroses's avatar

Does Samantha want to pay for half of Felicia’s Master’s degree? That education isn’t free.

It seems that the businesses are unrelated entirely. Felicia is still meeting her obligations to the business they began together. Her income benefit from her higher education is hers. It has no more bearing on the daycare than if Felicia decided to work in catering on the side.

nikipedia's avatar

It seems pretty clear that Samantha is being unreasonable—is there something going on with her that’s making her desperate for money, or has she had to take over other responsibilities to enable Felicia’s other business starting up (that Felicia wasn’t able to cover)? Where is she coming from with this?

drdoombot's avatar

@nikipedia Samantha is adamant that her business relationship with Felicia includes Felicia’s side-earnings: partly because it involves children and partly because it forces Felicia to leave in the middle of the work day.

From my own personal speculation: I think it might be a within-the-family jealousy issue. Samantha actually has the same Master’s degree as Felicia, but hasn’t been able to find work in that field.

WestRiverrat's avatar

One of them can still buy out the other party. The client list has got to be worth something. But I would make the babysitter an employee of the daycare so she is covered by the day care’s liability insurance. Then Felicia should offer Samantha a portion of her share of the day care to make up for any extra responsibilities that Samantha has to cover.

If Samantha wants half of the special ed money, the business should have to pay Felicia’s student loan bills until they are paid off or the business is disolved

augustlan's avatar

Samantha is wrong, plain and simple. The only thing Felicia might want to do is give Samantha a larger share of the daycare profits, but only if Sam has had to take on extra responsibility in Felicia’s absence.

If Samantha refuses to see the logic in this situation, I don’t think there’s much of anything that can be done to maintain family peace. It might be best to just bite the bullet and dissolve the partnership altogether. There will be pain, certainly, but at least it will be all at once rather than a simmering resentment one must deal with forever.

marinelife's avatar

Do they have a partnership agreement that spells out how their efforts are to be split? If Felicia has replaced herself in the daycare business and pays for that out of her own salary, then Samantha is not entitled to anything from Felicia’s take from other endeavors.

Felicia needs to get out of business with Samantha ASAP.

cheebdragon's avatar

She should tell Samantha to fuck off….sure it’s unprofessional but you know that’s what you really want to say to her.

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dannyc's avatar

I had this happen to me. I advise all people who have partnerships to have a detailed shareholder’s agreement which spells out these situations precisely. After the fact, he said, she-said is a recipe for a salivating lawyer on both sides.

roundsquare's avatar

Why is Samantha mad? I can only think of a few reasons:
1) Jealousy – she isn’t the one who started a side business.
2) Extra work – because Felicia is gone, Samantha has to do extra work at the daycare. Just hiring a babysitter may not be enough. I don’t know what goes into running a daycare, but surely there are administrative tasks. Is Felicia carrying her weight on these? Is the babysitter up to snuff? Etc,,,, Only Felicia can really answer these questions but she may not be honest.
3) She wants to work with Felicia. Maybe this was a big part of why she got into the business.
Reason #2 is a real reason why Samantha should get more money, though not necessarily half of Felicia’s other earnings.
Reason #3 is arguable. Samantha might be losing real value in her life. Even so, she is unlikely to be satisfied with a little extra money each month.

If things aren’t gong to work out, they should get some impartial person to help them mediate and end the business relationship.

Haleth's avatar

Option 1: Samantha buys out Felicia’s share of the daycare business. She controls all the profits and expenses, so her income goes up and she continues to pay the employee out of her own profits. If she continues to operate out of Felicia’s house, she pays Felicia rent. If Felicia wants to be involved in the business, Samantha hires her on as a part-time employee.

Option 2: Felicia pays for the new employee’s salary, because her departure created the need for the new employee. Otherwise, they continue to split the profits 50/50.

Option 3: Felicia and Samantha work out a new way to share the profits, which reflects that Felicia is a part-time worker and Samantha is a full-time worker.

The current arrangement isn’t fair, because right now Felicia is getting more money out of the business but putting in less hours. But Samantha has no right to the earnings from Felicia’s side business. I think option 1 is best.

WasCy's avatar

Felicia should look for a replacement partner – for herself. She should decide what her half of the business is worth and shop for a buyer (maybe even offering to finance the current part-time replacement as Samantha’s new partner). When she finds the value of the partnership, then Samantha should have the first option to buy her out at that price. (Or Felicia can offer to buy out Samantha at the same price.)

Felicia should continue to offer her home (at a reasonable rate, to be negotiated between the current partners) as the base of operations for a time to be determined – say 3 to 6 months, which would be plenty of time to find a new place and make the necessary childproofing, etc.

If Samantha refuses to consider the buy-out, then Felicia can offer to buy her out at the price she determined it would sell for, and continue her operation with the part-time replacement plus whoever else she has to hire to replace Samantha. Obviously, that’s not going to be easy for Felicia to finance, so it might be worthwhile for her to negotiate at least a temporary settlement with Samantha now that keeps the partnership alive at least until one of the partners can afford to buy out the other.

The partnership is not going to work in its current configuration. Samantha’s demands are not completely out of line, but clearly she’s staked out a negotiating position that is too extreme.

BarnacleBill's avatar

Are they actually in business, as in they have a partnership agreement, are paying income tax as a business, carry liability insurance, or is this a way to earn income under the table?

If the daycare is being staffed by one person during the day, then that’s in violation of most day care codes. If they hire one additional person to staff the day care in place of the other, that may still be a violation of day care codes.

If the center is in Felicia’s home, then if all other things are split equally, they are not being equitable. Felicia’s home has the wear and tear of being the business location, and she has the short end of the stick.

Their partnership agreement should include terms on how to dissolve the partnership.

6rant6's avatar

What about going to arbitration? Might keep things from getting ugly – whatever the underlying legal issues are.

cheebdragon's avatar

I wonder if Samantha were selling items on eBay (example), would she be willing to give you half of her profits?....

Buttonstc's avatar

Since this is a sticky family situation as well as a business problem, if the two can’t mutually agree on a solution with terms satisfactory to both (within a specified period of time) I think it would be well worth it to hire a professional arbitrator.

It would certainly be far less expensive than hiring two lawyers as adversaries.

Aside from the financial savings, it would have the benefit of an objective unemotionally entangled third party looking at the totality of the situation.

It’s obvious that Samantha’s demand is way out of line. But it’s clear that Felicia basically made a unilateral decision to depart from the parameters of the original agreement upon which the business was founded.

Granted, she did try to mitigate the situation by hiring a replacement for herself, but it’s not really the same as it originally was agreed upon.

Somebody (either Felicia or an objective third party) needs to be able to listen for what is really at the root of WHY Samantha is finding things untenable and making the demand she is.

Perhaps it’s the only way she can think to give voice to her dissatisfaction.

Once somebody can get to the root of the precise WHY of her unhappiness over the turn of events, then can begin the process of deciding WHAT is an equitable way to give her enough satisfaction to feel that her concerns have been heard and acknowledged without going overboard.

If an impartial third party cannot come up with a win/win solution which meets the financial and emotional needs of both partners then there is nothing left to do but to dissolve the partnership. It’s doubtful if either of them want to take it to that extreme so it needs to be agreed that both will abide by the decision of the arbitrator as to what a fair compromise would be.

Since the business is operating out of Felicia’s home, that obviously gives her an advantage and Samantha needs to wake up and smell the coffee.

What initially ticked off Samantha might be as simple as the fact that Felicia just went ahead and started the secondary business and decided to absent herself from the business for significant hours and just decided that hiring a substitute for herself was just fine and dandy.

Normally, if people are in a partnership with workload and profits being shared 50/50, any significant changes to that arrangement are decided jointly, not unilaterally by one person assuming that the changes she made should be just fine with the other partner.

It’s true that Felicia tried to be fair and hired and paid for a replacement for herself. But just presenting it as a “fait accompli” obviously didn’t sit well with her partner.

And considering the nature of this particular business, that’s understandable. Childcare is a very hands-on, personality driven business (as opposed to something like accounting where it’s a specific ability unrelated to personality that is being substituted).

There are ineffable qualities such as nurturing manner, warmth, sense of humor, calmness etc etc etc which vary tremendously from one individual to another. Yes, someone can be a licensed care provider and be quite adequate in the eyes of the State, but that person isn’t Felicia. Presumably the two ladies started this type of business with each other because of the degree of rapport and enjoyment of working with each other.

Merely sticking in another person (like a cog in a wheel) just isn’t the same. Essentially Samantha is now faced with working significant hours each day with a stranger. The stranger may have the proper credentials, but there may or may not be much rapport. My guess would be probably not much or Samantha wouldn’t be this unhappy.

I have a hunch that even tho her objection is being voiced in a strictly financial parameter, something much more emotional is beneath the surface driving it.

That’s just my two cents worth of hunch. See what impression an arbitrater has and go from there.

Let us know how it eventually turns out. I wish the best for them as I think they started out with the best of intentions but just failed to nail it down in written form. Perhaps this situation may open the door for them to negotiate a more precise and workable agreement to put their business on a more solid and long lasting foundation.

SpatzieLover's avatar

Rules of business:
Never become a business partner with a friend or family member. Period. Felicia needs to get out whilst she can.

broughtlow's avatar

If it were me, like it or not, I’d examine what would or would not be had i never associated with them.

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