Black-Jack Antiques

Nathaniel H. Chan

Ateneo Graduate School of Business-Iloilo Campus Regis Program

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 Black-Jack Antiques

Background of the Case

Jeremy Black and Kevin Jack has been officemates for their state’s transportation

department. Although Kevin is much older than Jeremy, they have developed a strong friendship

through the years. They have also discovered a common love for antique furniture, Jeremy for

restoration and Kevin for collecting. Together with their respective wives, Jenny and Susan, they

would frequent estate sales and antique stores. They also began talking of the possibility of

becoming business partners someday and opening up their own antique furniture sales and

restoration shop. This talk became reality six years ago when they left their jobs and opened

Black-Jack Antiques: Furniture and Restoration. They started the partnership without any

business plan and formal partnership agreement. Because of Jeremy’s huge personal debt and

low credit score, Kevin took start-up loans for the business under his personal name. In return,

Jeremy’s construction skills and supply contacts saved the pair several thousand dollars in

renovations to the building. His reputation and client list from previous restoration works also

provided the business a solid base of clients and referrals. They saw this as a win-win situation

and they did not bother anymore to ascertain as to whom between them invested more in the

business. The business grew steadily through the years with Kevin, a detail-oriented, business

savvy person, overseeing the sales and business side, and Jeremy, focusing on the restoration of

furniture. Jeremy’s growing family and his mounting personal debt led Kevin to offer financial

help to him on two occasions and despite Jeremy’s substantial stress in his personal life, he did

not let this affect his work. The partners’ wives have also developed a strong friendship as they

would often meet for lunch, shopping and other activities. In one of their latest conversations,

Jenny told Susan that Jeremy might soon have a job in a nearby furniture design firm and he was

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thinking that maybe they could sell the store or Kevin can buy out his “part” of the business.

Kevin was shock to hear this and instead of immediately confronting Jeremy, he decided to talk

to his father-in-law, “Coach” Ed Morgan. After explaining the situation to Coach, he expressed

commitment to his friendship and partnership to Jeremy. He was concerned that Jeremy might

be making the wrong decision on leaving the partnership because of fear. He also expressed his

apprehensions that the antique side of the business may not be enough for it to survive if Jeremy

leaves. Furthermore, he does not know how to split the profit from the possible sale because he

made the major financial investment. He was also afraid that at his age, he might not find a job

anymore. After hearing Kevin, Coach posed the question “What should a friend and business

partner do?” This was a wake-up call for him and that night he and Susan discussed their options

and how to proceed. Acknowledging that the lack of written agreement was a problem, Kevin

wanted to know what Jeremy was feeling for him to look for a job elsewhere. They also

discussed the strengths and potential of the antique side of the business and Kevin’s own

strengths and options in the future. These considerations are very important as Kevin thinks

about his options and his next move.

Definition of the Problem

The lack of a business plan and a formal partnership agreement are the main problems in

this case. In any start-up business, careful planning is essential. A business plan, which is a

document that specifies the details of the business prior to its opening, will help the

entrepreneurs identify the potential issues and problems accompanying a particular business

venture. A formal partnership agreement meanwhile specifies the partners’ individual

responsibilities and resource contribution as well as what expertise they will bring to the table.

In the case of Black-Jack Antiques, Kevin and Jeremy started the endeavor without these two

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important documents and instead relied on their strong friendship and their individual expertise

to jumpstart the business. The lack of a business plan forced Kevin to take a start-up loan under

his name instead of finding potential investors or venture capitalists to finance the business.

Since their partnership was based on friendship and mutual trust, they did not even consider

crafting a formal partnership agreement which could have protected the legal and economic

interests of both parties. Kevin failed to foresee the implications of a break-up in the partnership

which a formal partnership agreement would have considered. This ambiguity in the terms of the

partnership may also be the reason for Jeremy’s decision to leave the partnership. Since Kevin

was the one who invested more financially in the business, Jeremy must have thought that he has

lesser share in the partnership. This must have made him feel less financially secure especially

since he was undergoing financial difficulties.

Objectives for Problem Solution

The objective in this case is for Kevin to address the problem by talking to Jeremy on the

future direction of the partnership. Kevin must present to Jeremy the advantages and

disadvantages of all the alternative courses of actions that they can take depending on whether

Jeremy decides to stay or to leave the partnership . Kevin should also try to know and understand

the reasons why Jeremy is contemplating on leaving the partnership. This way, they can have an

honest conversation and come up with a “win-win” solution to the problem. This will hopefully

keep the friendship and at the same time protect the interest of both partners.

Alternate Courses of Action

The first alternate course of action that Kevin can take is to talk to Jeremy to convince

him to stay in the partnership. He should first elicit the reasons for Jeremy’s plan of leaving the

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partnership so he can understand Jeremy better. Although the case does not explicitly say how

transparent Kevin has been with Jeremy regarding the financial situation of the business, there is

a great possibility that Jeremy’s lack of information on this matter is one of the reasons for his

decision. Jeremy might feel that the growth of the company through the years has not translated

positively to his personal life with his ongoing financial woes. Jeremy might also feel that his

hard work in the restoration side of the business has not been compensated well enough. If Kevin

is able to assure Jeremy that they can thresh out Jeremy’s concerns for him to stay in the

business, it is best that they draft and sign a formal partnership agreement that will protect the

interests of both parties. This agreement should explicitly state the individual responsibilities of

the partners as well as the ownership structure and the profit sharing scheme. The business

should also compensate the technical prowess of Jeremy for every restoration job he performs as

well as recognize the managerial skills of Kevin by giving him a monthly salary. The contract

should also clearly express possible exit strategies that a partner can take if one wants out in the

future.

If Kevin will not be able to persuade Jeremy to continue with the partnership, he can

pursue two other alternative actions; he can buy-out the shares of Jeremy or they can sell the

business to a third party. If Kevin decides to buy-out the shares of Jeremy, the challenge is how

to put value on the partners’ individual shares in the business. Before Kevin can buy Jeremy out,

they should first hire an accountant to conduct a thorough audit and valuation of the assets of the

partnership. This process will help them divide the business equitably and prevent

misunderstanding and hurt feelings. The advantage of this alternate course of action for Kevin is

he will have full ownership and control of the business. He can bring it to whatever direction he

wants without consulting anyone. However, there are some questions that Kevin needs to

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answer before deciding on this choice. First, does he have enough money to buy Jeremy out?

Will the antique side of the business be able to sustain it? These questions can be answered by

careful business planning which he must do before deciding to take this option. If his money is

not enough, the option is either to take another loan or arrange a comfortable payment scheme

with Jeremy to pay off his shares in a longer period of time. If the business plan says that the

business cannot be sustained with the antique side alone, he can talk to the furniture design firm

where Jeremy will be working if they can arrange a possible tie-up or joint venture for the

restoration part of the business. He can even ask Jeremy to work for him part-time on week-ends

for the restoration side of the business.

His last option is to agree with Jeremy to sell the business to a third party. This decision

will still entail careful valuation of the partnership’s assets so that equitable distribution of the

profit can be done after the sale. Kevin will also face a lot of challenges with this decision.

There is no certainty of the time frame that they can sell the business. While waiting for a buyer,

there is a distinct possibility of the business operating at a loss without the restoration side.

Second, Kevin’s age is a drawback in getting himself a job once they have already sold the

business. If Kevin will have difficulty in finding work after the sale, the profit that he will make

from the sale of the business may not sustain him in the long run.

Conclusion

In conclusion, the most viable alternative course of action for Kevin to take is to convince

Jeremy to change his mind of leaving the partnership. Since the business is already past its start-

up stage and is probably on its survival or early success stage, the hard work that the partners

have put into the business may go to naught if they separate. The skills sets of Kevin and Jeremy

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complement each other and their individual contributions are essential for the survival of the

business. Therefore, it is best for them to stick together and help the business grow to resource

maturity. Since they failed to make a business plan and formal partnership agreement at the start

of the business, they must do it right this time to avoid destroying the friendship and ensure the

long-term survival of the partnership. If Jeremy will be honest enough to tell Kevin the reasons

why he was thinking of leaving the partnership, they might be able to thresh out matters and

come up with solutions to solve Jeremy’s financial problems. The other alternative courses of

action are full of uncertainty especially regarding Kevin’s future. If he decides to buy Jeremy

out, there is no assurance of the future success of the business. If he decides together with

Jeremy to sell the business, the specter of joblessness looms large for Kevin. Both actions also

do not guarantee that Kevin and Jeremy’s friendship can be maintained. The process that they

will undergo in either the buy-out or the sale may become acrimonious that they may even end

up as bitter enemies. Kevin must therefore go back to the question of “Coach” Ed, “What should

a friend and business partner do?” The best answer is for Kevin to do his best to save both the

friendship and the partnership.

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Reference:

Daft, RL. (2016). New Era Management. 11th Edition.