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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.
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