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Breaking up in Business

16 February 2021
Mark Friend
Structuring a Business

Breaking up is hard to do

“Breaking up is hard to do” so says Neil Sedaka in his famous song about love.

Unfortunately the same can also be said about businesses relationships and in some ways it can be far more complicated.

Just like the spoils of a relationship, the house, the kids, the money, the same applies to business. The business relationships, the team, the assets and for many business breakups the debts!!!

Over the many years I have been in business sometimes things just haven’t worked out and the owners have gone their separate ways. I remember back in 2006 I felt I had no option but to end the business partnership I was in.

Business relationships usually begin with lots of enthusiasm and passion but soon hit the reality of life. There will be highs and lows in business, the business leaders will have differing visions of where they wish the business to go, different work ethics, differing family constraints and much more. It doesn’t necessarily matter whether your business is a great success or a failure we are all different and sometimes we have to go our different ways. The key however is to have a plan in case the worse happens.

Have a plan

In business, having clear agreements around how the partners can exit the business is acknowledged as good practice. As such, it is important to have this conversation at the beginning a of a business partnership and to document it. In a previous blog entitled “Why are shareholder agreements so important” we looked at this in more detail and reviewed what goes into a good shareholders’ agreement.

Remain professional

When selling or exiting a business, it’s important to remain professional. You might feel disappointed over a failing business partnership but angry or emotional communications won’t help the process. Take your time, remain calm and if you find yourself drafting a sharp-toned email, save it to your drafts and review it again the next day before deciding whether or not to send it.

Seek advice

Always seek professional guidance – there are lots of financial and legal experts in the market who have considerable expertise in this area and who can help you achieve a successful exit from your business.  In the first instance we recommend you speak to us about your concerns. Sometimes we can act as mediators between partners. I remember one of my most successful company clients hitting a rough patch with both directors refusing to talk to each other. It was a tricky time but through various meetings we worked out a way for both parties to communicate with each other and over time the relationship was rebuilt. But sometimes things are irreconcilable and the partners have to go their separate ways.

Understand your business

If the worse happens you need to have a good understanding of your firm, its financials and any outstanding issues, etc. If you and your business partner(s) decide to sell the firm to another company, the buyer will be keen to download your knowledge of the business. If you can explain things in detail to the potential new owners, it will help to build their confidence in the deal and could positively affect how much value they assign to the purchase. If one of you decides to buy the other out then there are many ways this can be done. A management buyout (MBO) may be an option and we have implemented this successfully on a number of occasions, including a £1m MBO of a 50% shareholding in a successful IT company. The remaining director had reached the end of his tether with his plans to grow the business being stifled by his 50:50 partner. It was touch and go at one stage, with liquidation looking possible, but ultimately good sense prevailed. A deal was struck and the exiting partner was bought out and fortunately the business itself has gone on to great success.

Being in a toxic business relationship can damage not only your health but that of your business. There is always a way out however, provided all parties are fair. In most situations, however bad it may seem at the time, there is a way forward!

Talk to us

If you are in a difficult business relationship and need to find a way forwards then why not talk to us before things get too tricky. If you are setting up in business then please don’t dismiss a shareholders’ agreement due to the cost. From experience a good shareholders’ agreement will often save thousands of pounds in future costs and will make breaking up far easier to do.

The content in this blog is correct as at 16/02/2021. See terms and conditions.

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