Growth and Jobs… Without making any sort of political statement, growth and jobs are clearly an important focus of the Australian government. Where will this growth come from? Small Business!!!
Start-up small business falls into one of a number of categories when starting out:
- I’ll do it myself and pay for help when I need it. I own it all.
- Mum/Dad/Brother/Sister will go into business with me. We will keep it all in the family.
- My best mate and I have always wanted to go into business together. We are as good as family.
- I need some special expertise and I am happy to give up some ownership to do it. Share the ownership around.
Of all of these, which is most likely to succeed? Which is most likely to fail?
I was recently told that all partnerships will eventually end.
On the face of it, it sounds negative and fatalistic. When thought about more deeply it is just a fact. Even the greatest marriage, partnership, friendship will end… even if it is death that ends it.
There are so many ways that partnerships end:
- Desired retirement
- Family wants to move (kids schooling, spouse’s new job, sea-change, tree-change etc)
- Sickness
- We hate each other!!
- Disagreement
- Death
- Opportunity
- And the list goes on.
When you start out in business, how do you feel? I can tell you how I felt. Excited, nervous, a bit of fear, and a bit more excitement. There is nothing quite like creating something of your own, the way your own experience tells you it should be done.
These are good times!!! Good times are the best times to prepare for the worst times. This is the time that you need to consider how you would like to dissolve your business partnership – and this is where business partnerships differ to personal ones…
What would you like to happen if your business partner needed to move permanently to the other side of the world?
What would you like to happen if you needed to move to the other side of the world?
When times are good a fair and reasonable outcome is more likely to be reached… both parties can objectively put themselves on both sides of the fence.
If one partner needs to sell their portion of a business what are their options? There are only 2.
- Sell it to the other partners within the business; or
- Find an external buyer.
Option 2 is unlikely to be palatable to anyone within the business. It is always very difficult to find such a buyer at a reasonable price. For the remaining partners it is also a situation that leaves them with a new partner that they potentially have never worked with before. Not a great outcome.
So we are left with selling it to the existing partner/s. Right now in the good times, I am sure you can come up with a reasonable solution, everyone agreeing a way of valuing the business… everyone agreeing a payment plan that doesn’t put the business in financial peril. That’s good, great even. It needs to be documented NOW.
Experience shows that if these discussions are not documented, or are left to the time when they are needed, someone loses out. Relationships are broken, and businesses fail, and your hard work and long hours will be for nothing.
Please please please, sit down with your business partners and discuss these possibilities. Better still get an external person to facilitate the discussion – makes it feel less like you are about to leave!!!
While we are having this beautiful discussion let’s talk about the impact of a business partner dying or being unable to work in the business due to ill health!!
Do you know what is in your partner’s will?
Who will own their share of your business?
Who has directors guarantees? What will be the banks reaction to their death?
What will be the impact on business revenue?
How will this affect you personally, and what impact will that have on the business?
The strategy for this needs to be all encompassing; let’s look at any kind of exit from the business.
The strategy needs to consider:
- Pricing
- Valuation
- Funding of Purchase
- Payment Timeframes
- Ownership
- Debt
- Directors guarantees
- Cash Flow
- Personal Estate Planning
- Business Estate Planning
- Exit Agreements
- Insurance
The strategy needs to be facilitated with accountants, solicitors and a financial strategist.
If you are a partner in a business, new or old, this needs to be reviewed to ensure everyone is looked after fairly and sensibly, so the asset that is your business can continue to provide for you and your family.
To arrange a facilitation of this kind of discussion please contact me at info@forwoodplanning.com.au.
