November 21

A tale of two brothers.  Why you need a business valuation.

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Once upon a time there were two men who decided to go into business together. Being of like mind, the business partners formed a company.  Each man put in the same amount of money, and agreed to take a 50/50 share in the business. They would each work to the best of their ability with the goal of creating a successful business.

The business partners worked well together for several years.  It was fun.  It was also hard work.  Both partners put in long hours: finding clients and delivering the services. There was always the business administration that also needed to be done: building a website, arranging marketing, finding and paying staff, negotiating with suppliers, paying bills.  Some of the job functions were exciting, others more monotonous.  But they both worked hard and the Company was successful.

It came to pass, that the business partners began to argue. Which partner was more responsible for the success of the business? Which one worked harder? Who put in more work? How do you measure efforts for the success of the business?

The business partners could not agree. As the bickering grew, the business suffered.  Sales declined, costs skyrocketed, profitability crashed. There were accusations one partner changed access to the bank accounts without telling the other partner.  The bank accounts were changed to direct client payments to a new bank account.  There were accusations one partner changed the percentage equity ownership in the filings with the provincial registry service.  Somehow one guy ended up owning 85% of the voting shares, where before he held only 50%.

Thankfully, these two businessmen never came to blows.  At least, not that I heard.  The aggrieved partner called a lawyer and filed a statement of claim for shareholder oppression.  At that point, we were engaged provide an opinion on the value of the business before all the nonsense started.

The business valuation enabled the partners to negotiate a sale of the ownership of one partner.  The selling partner knew he didn’t want to work with his business partner any longer, but needed to be compensated fairly for the success of the business. 

Yes, the two partners sacrificed a lot for the business.  But they cain to their senses and were able to negotiate a deal. 

Win-Win.


Tags

business value, Damages, litigation, oppression


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