|
Three and a half years ago I sold my service business (i.e., contracts, no
tangibles) to a competitor. We each had our lawyer draw up a contract, and
we then sat down together to go over our lawyers' recommendations. There
were a couple of specifications in my contract that she did not agree to,
and one item in hers that I would not agree to. Therefore, between us we
rewrote a contract based on the input of the two contracts together. The
purchase price was based on my previous year's billings: 10% up front, and
20% of the clients' billings paid out over five years, or until the total
purchase price was paid, whichever came first. The clients were all
notified of the transfer of business, and I agreed to work for the buyer on
those contracts to ensure a smooth transition. (I am still working for this
woman as an independent contractor, working out of my home office.) I also
had offered to personally accompany her to each client's place of business
in order to introduce her to further ensure a smooth transition. From the
start of the contract her payments were slow. Her explanation was that the
clients were slow in paying her and she couldn't pay me the 20% per month
until she received payment of her bills. (Note - when I owned these
contracts, their payments were always made within 30 days.) As time went on
her payment schedule became more and more sporadic, but because I was now
working on her contracts on a fairly regular basis, earning about $25,000
per year, I was lax about demanding payments on a more regular basis as had
been specified in the contract. Meanwhile, as time passed and I became
friends with the office manager, I learned that this woman had, in fact, not
provided the service my ex-clients were used to receiving from me, and one
by one she was losing their business. This has progressed to the point
where she now has only approximately 15% of the business which she purchased
from me, and now she has informed me that she wants to renegotiate the
original contract. She feels that since she no longer has income from the
contracts she purchased, she is not required to pay me. She believes that
the purpose of a five-year pay out plan is to cover the buyer for business
loss. I contend that if a person buys a car and the engine burns out
because that person neglected to add oil, the purchase contract must still
be paid. (BTW, I did readjust down the original payment amount as one
client went elsewhere within a month of purchase.) I have carefully gone
over the contract, as have several business acquaintances, and based on its
wording, the buyer is obligated to pay the entire purchase price of the
within five years. Nowhere is it stated that the buyer only pays for the
clients remaining at the end of those five years.
I will be meeting with this woman next week, and would appreciate any
opinions you could provide. I am amenable to negotiating to a reasonable
degree. Specifically, I would consider settling for half of the remaining
amount due (i..e., $36,000 instead of the $72,000 still owed) payable
immediately and ending our agreement. However, through the office manager I
have learned that the owner wants to pay for only the 15% of the remaining
business, continuing to pay me 20% of billings until the end of the
contract. Has anyone reading this ever had experience with such a
situation? Am I being unreasonable?
Thanks so much for reading through this.
|
| |
| |
Three and a half years ago I sold my service business (i.e., contracts, no
tangibles) to a competitor. We each had our lawyer draw up a contract,
and we then sat down together to go over our lawyers' recommendations.
There were a couple of specifications in my contract that she did not
agree to, and one item in hers that I would not agree to. Therefore,
between us we rewrote a contract based on the input of the two contracts
together. The purchase price was based on my previous year's billings:
10% up front, and 20% of the clients' billings paid out over five years,
or until the total purchase price was paid, whichever came first. The
clients were all notified of the transfer of business, and I agreed to
work for the buyer on those contracts to ensure a smooth transition. (I
am still working for this woman as an independent contractor, working out
of my home office.) I also had offered to personally accompany her to
each client's place of business in order to introduce her to further
ensure a smooth transition. From the start of the contract her payments
were slow. Her explanation was that the clients were slow in paying her
and she couldn't pay me the 20% per month until she received payment of
her bills. (Note - when I owned these contracts, their payments were
always made within 30 days.) As time went on her payment schedule became
more and more sporadic, but because I was now working on her contracts on
a fairly regular basis, earning about $25,000 per year, I was lax about
demanding payments on a more regular basis as had been specified in the
contract. Meanwhile, as time passed and I became friends with the office
manager, I learned that this woman had, in fact, not provided the service
my ex-clients were used to receiving from me, and one by one she was
losing their business. This has progressed to the point where she now has
only approximately 15% of the business which she purchased from me, and
now she has informed me that she wants to renegotiate the original
contract. She feels that since she no longer has income from the
contracts she purchased, she is not required to pay me. She believes that
the purpose of a five-year pay out plan is to cover the buyer for business
loss. I contend that if a person buys a car and the engine burns out
because that person neglected to add oil, the purchase contract must still
be paid. (BTW, I did readjust down the original payment amount as one
client went elsewhere within a month of purchase.) I have carefully gone
over the contract, as have several business acquaintances, and based on
its wording, the buyer is obligated to pay the entire purchase price of
the within five years. Nowhere is it stated that the buyer only pays for
the clients remaining at the end of those five years.
I will be meeting with this woman next week, and would appreciate any
opinions you could provide. I am amenable to negotiating to a reasonable
degree. Specifically, I would consider settling for half of the remaining
amount due (i..e., $36,000 instead of the $72,000 still owed) payable
immediately and ending our agreement. However, through the office manager
I have learned that the owner wants to pay for only the 15% of the
remaining business, continuing to pay me 20% of billings until the end of
the contract. Has anyone reading this ever had experience with such a
situation? Am I being unreasonable?
Thanks so much for reading through this.
Your instinct is correct in both respects. The buyer is responsible for the
purchase price, and it is probably wise to settle for half, because of the
cost of litigation. I haven't seen the contract, so the above is based on
the assumption that the contract language properly says what you say it
does, and contains nothing to the contrary. I would not get into the
philosophy in your discussion with her. Just say: "You owe the contract
price. If you want to settle for half as a lump sum, I will. Otherwise I
will sue for the contract price. If you don't think you owe it, take it to
your attorney."
McGyver
|
| |
| |
Thanks for your input. I intend to follow your advice.
Liz
(top posted for your convenience)
Your instinct is correct in both respects. The buyer is responsible for
the purchase price, and it is probably wise to settle for half, because of
the cost of litigation. I haven't seen the contract, so the above is
based on the assumption that the contract language properly says what you
say it does, and contains nothing to the contrary. I would not get into
the philosophy in your discussion with her. Just say: "You owe the
contract price. If you want to settle for half as a lump sum, I will.
Otherwise I will sue for the contract price. If you don't think you owe
it, take it to your attorney."
McGyver
|
| |
| |
On the other hand, you both agreed to the contract price based on the worth
of the business (which included the goodwill). She obviously has not kept
up her part of the bargain so I would not be ready to cave in from the
start. Even if you are amenable to settle for half, don't let her know that
from the start. Open negotiations by stating: You have breached our
contract and I want to enforce it. You can always come down a bit, but in
negotiations never, ever open up with your bottom line.
Good luck
Thanks for your input. I intend to follow your advice.
Liz
(top posted for your convenience)
|
| |
| |
|
