The partner buyout proposal uses cash already needed for current work
Assess operating cash depletion from proposed partner exit funding without assuming lawful company funding.
Corporate Recovery Partners
01 / 06
The bank balance makes the exit look affordable
A hypothetical owner proposes funding a partner's departure using cash held by the business. The balance appears sufficient, but it includes recent customer receipts needed to complete ongoing jobs. Before making an offer, obtain advice on the proposed funding structure and assess the obligations that remain after the payment. A visible balance is only the starting point.
Ask the lawyer and accountant whether the contemplated payment and structure are appropriate for the circumstances. Identify who would buy the interest and whose money would be used. Do not assume company funds are available for a personal purchase. Keep the legal and accounting assessment separate from the arithmetic showing what the business can afford operationally.
Business.gov.au's cash-flow guidance uses opening balances, receipts and payments to establish closing cash. Show current commitments alongside the proposed exit payment. Include realistic costs to finish existing work and clearly labelled estimates. Avoid treating all receivables as immediate funding or ignoring payments merely because the supplier has not yet sent a reminder.
In the hypothetical example, the payment would occur before a materials order and wage run. Compare the remaining cash with those obligations and later receipts. If the proposal depends on another loan or a customer paying early, show that dependency explicitly. Do not quietly assume either event will happen to make the exit appear affordable.
If the proposal creates a shortfall, ask the advisers what lawful and commercially workable alternatives can be considered. A staged payment or different funding source requires agreement and assessment; it is not a unilateral solution. Explain the financial constraint to the departing partner with evidence rather than promising cash the business needs for other obligations.
Update the comparison as proposed terms change, and obtain advice if the company cannot meet its debts. CRP can help assess the cash consequences of the exit. The decision should account for the business that must continue after the partner leaves, rather than ending at whether today's account balance exceeds the proposed price.
