Turn the Car Around
Posted on | March 23, 2010 | 7 Comments
I’m sorry it’s been so long since I’ve posted some real practical business information. I’ve been extremely busy on several other fronts as you can see by browsing my recent posts. Today made me sit up and take notice of a particular issue – what I call the “turn the car around” moment.
My day started this morning giving one of my standard programs at our local Small Business Development Center. Today’s talk was about the formation documents you need for your business – especially for non-marital partners who can’t “kiss and make up” when there is a business dispute or stress.
One of the key points of the talk is what I call the “turn the car around” moment. This moment happens sooner or later in EVERY business. It’s the moment when you’re driving home from work and ask “what would it cost me to just keep on driving and never have to see that SOB again!?”
The record in my practice is 6 weeks… I had two women who were best friends until they went into business together. 6 weeks later they were asking “what would it cost me…?” Unlike many entrepreneurs (who are not my clients) these women had the documents in place to answer that question. We were able to dissolve their business venture and salvage their friendship. Without those documents, it would probably have cost several thousand dollars and ruined the relationship.
The key document is a buy-sell agreement.
These can be complex or simple, but they must BE. And they should contain AT LEAST a few elements:
1. Triggering events: death, disability, divorce, disinterest, etc.
2. Pricing formula: book value, sales multiplier, outside valuation, SOMETHING.
3. Payment method: all at once, over time.
If you don’t have this document in place, get it done NOW. Even an email between all the owners agreeing to those three points is better than nothing. I call this the “turn the car around” discussion because the goal should be to create a buy-sell document that provides incentive for the angry owner to turn the car around, come back to work the next day, and resolve the differences. Usually that means a relatively low-ball valuation method and a giving the remaining owner(s) the right to either pay the buy-out amount all at once or over several years.
An interesting side note: when I got back to my office after the presentation, a client was waiting. Guess what we had to discuss? Yes, a turn the car around situation. Again, I’m glad a buy-sell process is part of our standard formation package.
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7 Responses to “Turn the Car Around”
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March 23rd, 2010 @ 10:23 pm
Great post Kevin. Business owners should consider what planning should be done now for the eventual sale or transfer of their interest in their business (i.e. should you have a buy-sell agreement in place?). The time to prevent disputes is before they occur. My experience is that business owners anxieties created in dealing with one another, are inversely proportional to the effort they spend addressing business problems in the event that they should happen. Dealing with these contingencies before they manifest themselves is the secret to a harmonious business relationship with other owners. Legal fees as well as sleepless nights will be minimized if you agree to the “What Ifs” now. Again, great post.
March 24th, 2010 @ 8:18 am
[…] This post was mentioned on Twitter by the GISuser, Kevin Houchin and Daniel Alexander, Mike Lichterman. Mike Lichterman said: Very important to have that buy-sell agreement! New blog post: Turn the Car Around http://houchinlaw.com/?p=596 (via @kevinhouchin) […]
March 24th, 2010 @ 11:58 am
Kevin,
I took us 4 & ½ years to get to that day and cost us @ $16,000 to make one of our partners “go away” with business appraisals, attorney fees and the “separation” payment. How I wish I had known you when we organized our company, I feel like I am still paying for those mistakes.
Douglas L Braden
March 25th, 2010 @ 12:55 pm
Turn the Car Around : The Business of Creativity…
Turn the Car Around : The Business of Creativity…
March 25th, 2010 @ 10:16 pm
Turn the Car Around : The Business of Creativity…
Turn the Car Around : The Business of Creativity…
April 2nd, 2010 @ 7:29 am
As a Colorado Business Lawyer, I also experience these kinds of cases, two friends having a great dispute and then it will also lead to impending doom not only to the business, but also to their long lasting friendship. Such sad case.
But it also helps to be prepared in such things.
April 16th, 2010 @ 7:05 am
Turn the Car Around : The Business of Creativity…
Turn the Car Around : The Business of Creativity…