Business exit rules

In business, as in family life, exit rules must be formalized.

This is comparable to a divorce in a family. In the case of a divorce, all the nuances are spelled out in the laws – alimony; property division; with whom the children stay.

When dividing businesses, there are no such laws. Everyone says – negotiate yourself. But how to negotiate if emotions, as in a divorce, are above the roof.

The only winning strategy here is to have the basics of a divorce between business partners on paper and invite an outside expert to help reduce the heat of passion.

In what situations can business partners disperse?

The first case is when people grew out of business.

I had a business with a partner. One of my first businesses. The business was no bigger, just for my partner, I was a financial investor in it. After a while it became clear that I was interested in larger projects. I wanted to engage in consulting for businesses, large businesses. And my partner was only interested in our small business. And nothing else bothered him.

At some point, I realized that I had grown from a small business. I was no longer interested in business, I wanted to do something else. For my partner, this same business was his highest level. This is neither good nor bad. It’s just a fact.

When I realized this, we had to disperse. We sat down and agreed how we would part ways. The business was left to him, and I received part of the money that I invested in the company.

The second case is when partners have different views on the business development strategy.

One wants to develop in one direction, the other – in another, well, off we go. Sometimes it’s just a simple human misunderstanding.

There are situations when one of the partners just stupidly does not work in business. The business was created on the resources of one of the partners, time has passed, everything has changed, the person no longer has these resources, and therefore his participation in the business is also no longer interesting.

The third case is when a person is simply tired and wants to retire. This happens a lot lately. People who created a business in the late 80s – early 90s want to get out of business, live the rest of their lives in peace somewhere in warm countries in the sun.

So how do you get out of business?

The main dilemma that arises with a divorce in a company is how to value the company. Because the one who sells always appreciates the company significantly more than the one who buys.

In my situation, there was a wonderful example when the partners tried to disperse. One owned 66%, the second – 34% in the company. Naturally, there was a discussion on how to value the share in the company. The partner, who owned 34% of the company, was offered to buy his share for 5,000 euros plus the return of the loan received.

To the question “How much would you agree to sell your 66% stake in the company for?” a few days later the answer came – for 163 thousand euros plus the return of the loan received by the company. That is, 66% of the company cost 163 thousand euros when sold, and 34% of the company cost only 5 thousand euros when bought. The dilemma of the seller and the buyer.

It is clear that the deal did not take place.

In order to avoid such a situation, it is necessary to describe and sign the rules for assessing a company in a business divorce.

Rule one.

The price is determined not by the desire of one or the other, but on the basis of the algorithm prescribed in the document. The algorithm for calculating the value of the company can be entrusted either to an external consultant, or it can be immediately prescribed that the value of the company is calculated based on the size of the annual profit for the last five years, which is multiplied by the agreed coefficients and the total value of the company is obtained. Based on the total value of the company, the value of the share of each participant is calculated and this price is final for all.

The second rule, or rather the principle, is the principle of equality.

This means that if one of the partners makes an offer to buy a share of the company at a specific price, then he must be ready to sell his share at the same price.

Let me explain with an example. In the company, one owns 40% and the other two own 30%. The owner of 40% wants to buy the remaining 60%. He communicates his intention to other owners and announces the price of X euros per share. The principle of equality says that he must be prepared that the remaining owners can offer him to sell their shares at the same price X and he must agree. This principle is good because it does not allow you to make deliberately low price offers (as in the case of 5 thousand euros).

The third rule of divorce in business is to make the most of intermediaries at the time of negotiations.

The moment of divorce in business is emotionally difficult. People rarely understand and accept the reasons for divorce and are not always ready to see the possibilities in the situation that has arisen. Sometimes the conflict is already programmed at the level of human relations: someone is offended, someone was offended, someone looked wrong, etc. In this case, any negotiations of the owners among themselves, as a rule, end in a scandal and even greater misunderstanding.

The presence of an intermediary, a moderator who is professionally engaged in learning the relationship between partners allows you to avoid such a situation. An independent person, equidistant from all parties to the conflict, can hear both opinions, bring their positions together, and explain to the parties the pros and cons of the agreement. And as a result, time and nerves are saved.