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Hey {{first_name}},
Very few businesses of scale (>$5m revenue) have only one owner.
If you happen to be one of those few, great! For everyone else with a jointly owned company, this edition of Unlocking Wealth Weekly is for you.
Great business partnerships are like great marriages: priceless. But what happens when things aren’t quite … idyllic?
Perhaps this is a family owned business where the second generation have inherited from the first and you’re infighting.
Maybe two founding business partners have different strategic views: one wants to expand now while the other wants to play it safe (let us know if that sounds familiar…)
Or let’s say you previously took in an investor and that was a cordial and productive relationship, but what happens they die and their children end up with a piece of your business and they don’t see eye-to-eye with you?
This is very important for both running the business from a day to day perspective, a strategic view, and ultimately if you want to take in investors or sell the company.
In my experience there are several ways of fixing this complex problem.
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I’ve had experience with partnerships breaking down on several sides.
I’ve had strategic disagreements with shareholders that led to a buyout (I had to sell some assets to complete this, you may have to as well).
I’ve had disagreements where neither of us were in a buyout position, so I’ve had to lock them out of decision making based on the shareholder agreements (their equity is still growing so it’s all fair).
Finally I’ve had great acquisition opportunities that came about because the shareholders of the target company had fundamental disagreements (they hated each other) and so decided to stop working together and sell up.
In my experience these are the main ways to sort these out:
Always have buyout/divestment rights included in your shareholder agreements
It’s a bit cliche, but prior preparation is key in these sort of situations. It’s difficult in inherited stakes, so for those situations use these remaining tactics.
Don’t let emotions affect your decision making
When you’re tired of a business relationship that’s grating on you, it’s tempting to go for an easy way out - that’s what that company I acquired did. But it leaves money on the table that could be solved with a bit more patience. You need to decide if a quick fix is worth a extra upfront price.
Remember, often you don’t need 100% of the shares to be in control of decision making
Check carefully what the official roles of the shareholders are at the company. Unless specified in contracts, a shareholding doesn’t actually entail any management of the day to day financials. If you’re both paid in dividends, you as the CEO have control over how much profit is shown in your annual statements (in most countries you can’t pay in dividends more than the profits) so invest more in growth/R&D/acquisitions while paying yourself a salary and all of a sudden you have the leverage when going for the final takeover, which leads us to number four:
Be prepared to have a cash offer
If they disagree with your decision making, call their bluff and offer them the company. But make sure of three things:
Make sure it’s a solid price, but not a pie in the sky number.
You offer them to buy you out first, because you don’t want to look desperate to give them cash to leave
You don’t have a restrictive non-compete clause in the acquisition contract
Make sure you don’t fall for reverse psychology
Frankly, some people want to be difficult and not actually do the work while reaping the rewards. Be careful you’re not sending loads of money so someone can enjoy that while you have to still do all the admin work of the business, especially if there’s debt involved. Maybe they’re being difficult because they know you want the whole company and they can use this desire to overprice their shares. You should see a clear path for the equity you acquire to be worth far more than the buyout amount under your complete leadership
Hope these help and let us know what shareholder stories you have,
Here’s to your success,
Unlocking Wealth Weekly