When a Business is Shared and Business Interests

[WhyUs]

After a short discussion with Vanilla, we have decided to start this thread do discuss business topics. Many people either share ownership of a business with their spouse or have a business of their own. It is my hope that in this thread we can discuss the different aspects of handling business issues during this difficult time in our lives.

Please feel free to ask questions related to business and provide suggestions to those who are in need.

[Cadet]

This sounds like a great idea for a thread.

I own my own business and running it, moderating, and being on forums can sometimes be a challenge.

Certainly getting bomb dropped and my father dying was the most challenging time of my life.

My business has survived and is trying to stay profitable even in this tough economic climate.

Splitting a business in a divorce can surely help to kill it off.

What other topics would people like to discuss?

[WhyUs]

My WW and I own a business and we are 50/50 in it. It seems that the approach her L is taking is that the business can run without me but not without WW. I agree. However, her reason for going this route is to stop me from getting distributions. Last year they averaged $2,800 a month. Also, it would be very expensive to hire someone to replace me. They could not afford it right now.

WW and I started the business 8 yrs ago. Up until the last 4 months I was in charge of anything having to do with money. Invoice, bookkeeping, taxes, projections for hiring, travel, office space, insurance coordination. I worked without receiving a pay check for 7yrs.

My position is that I not only am a 50% owner. I have put up capital, and I have contributed 100's of hours of work. Essentially, the business would not be where it is today without me. Just because I am not working in the business anymore does not mean my investment goes away. I expect to still receive distributions. This is a real heartache for WW. She can not understand the investor relationship I have with the business. She feels that if I am not contributing anymore that I should not receive distributions.

I am a CPA, so I am very knowledgeable in business practices and business administration and business laws. I feel that I have a strong position. However, educating a divorce judge may prove to be difficult.

[WhyUs]

Bump for V

[Vanilla]

I owned a business for 35 years, WH was made redundant came into the business. played at it, expected the lions share and I had to buy him out. He got 50% merely because he had capital.

I paid out his investment as in reality he could no longer contribute nor had he.

I am a qualified international financial and tax consultant dealing in complex matters. I am also a pert q accountant, and provide advice on complex transactions including derivatives and tax efficient structures. WH was qualified by experience.

WhyUs, when we first discussed this I was concerned that you undervalued your contribution to your business with WW. The Managing Partner is the glue for any business, no matter what it is.

In several circumstances I have worked with clients to provide buyout structures, often it's best for the retiring partner to get an early valuation of a business, especially where that's the managing partner as the business often disintegrates. This is also between partners of the same sex.

I will look to providing a post on business valuation which I would appreciate comments.

What do you see as the practicalities of splitting a business? Is it the client base?

Could you find a technical partner to take up the slack? Are there clients who rely on you?

WH was going to be the managing partner but he didn't do very well so at the moment I am doing both roles, it's too much for one person and invariably I do the client work first. It's more interesting and urgent.

V

[Vanilla]

I am also sure there are issues of behaviour in the workplace.

V

[Vanilla]

Cadet

How long did it take you to turn your business around?

Was your Mrs Cadet involved in it and did you buy her out?

V

[WhyUs]

Valuation is the big question right now. The business is projected to grow considerably over the next 5 years. -- over 1 million in revenue. Profits will be 250k. Right now revenue is 300k profit 70k. We purchased a building that will allow this growth. This is great because it is a fixed cost.

In the USA acceptable valuation methods vary by state. I have looked for the exact laws in my state but am finding it difficult to find anything solid. I will eventually have to hire someone to do the valuation if we can not come to terms that I find acceptae.

Honestly, I think I would have more leverage if I already knew the value of the business prior to trying to negotiate. Howeve, in order to save time and money upfront I am willing to take my chances. Of cours my L may think otherwise and I will consider his opinion on the matter.

[WhyUs]

The business can not be split. WW is uniquely qualified in her field. No clients rely on me. Without her the business will fail. She is not a doctor but she is in the medical field. We have also expanded the business to include other medical specialists.

In want to say exactly what it is we do but I am afraid WW will find this board.

[Vanilla]

It's not necessary to say what you do.

I believe the key here is to identify 2 things

The first is: is the business likely to succeed? If so there is growth coming so the methods used may need to be NPV, projected growth methods. The net discount value of future enhanced growth.

So at 800,000 with escalation at say 20% pa for 20 years with a discount factor of 5%. Rough and ready would give your 50% a business value of 4,000,000. (that includes replacement costs of the managing partner, if you took that as a dividend for life I think you would be looking at your 50% about £30,000 per year (unleveraged). You could seek to let the business have deductions for part by taking some redundancy and/or pension contributions for you. In return you could offer a call option on the shares. If WW decide to sell the whole sum becomes payable from proceeds. And/or If WW does a 'spoiler' starts a new company say, you would need joint and several.

Of course with this solution you would be asked to sign a non compete agreement.

Those are my thoughts as usual comes with a caveat this is rough and ready, I would need more time to crunch. If it were me I would go for a flat fixed deal if I could.

Another way of valuing is Income Multiple but strangely the goodwill is rather similar. Unique business prop will need professional valuation. But I would say 10 to 15 times income.

You could try NAV but that doesn't look appreciate neither does open market sale.

Just my thoughts, spreadsheet models can confirm it. I just crunched your details through a business model for another client.

Don't forget you created a unique business model.

V

[Vanilla]

The second is the business model, is it workable for you in that area or another area. In other words can you buy the expertise and set to work to build a comparable?

V

[Vanilla]

WhyUs

If any of the debt is WWs you can secure it against her business interest.

Yes you are responsible for repayment, but if you do go under then the debt is secured against the business interest. Assets would have to be sold, or redeeemed. This will mean whilst you can pay, the debt is collected leaving you with a voluntary arrangement for the rest. After a short while would clear up your record. It's unlikely WW would want to deal with a liquidator or bankruptcy clerk to court. That would involve enforcement, she will have to pay.

Secure against the debtors book or interest as a registered charge.

I did that, in effect this means what WH owes me is deducted from his settlement. Yes, I do have to pay the banks etc but I have a capital source. You should be able to add interest. Have your S include this in your D agre. Your WW is going to go under very fast unless she stabilises and earns quickly.

If any of the expenditure is business of course it can be deducted as an expense and you hav a valid recovery from the business by any of direct repayment. You may also have garnish rights over dividends. Additionally consider a corporate bond instrument convertible to equity. That's how I got back the 50% WH owned. WW will have to buy out your equity rights if you do this.


V

[WhyUs]

V,

I like these ideas. The business does not have many assets except for about $20,000 in cash. We just bought a building for $500,000 but it does not have much equity since we have only had it for 10 months.

I would have to secure it against her distributions.

I thought of another idea today. The building has a sub lessee that pays a good amount. I am going to suggest that I take over that lease and step from all business related stuff. I will also say that I want to receive 10% royalties on all business revenue.

I will request that she pay half of the marital debt. If she does this I will not need to file bankruptcy and I will be able to pay off all debt with in 2 years. If she can not pay it I will secure it against her future distributions as you have suggested.

While I may not be getting as much money as I could if I had her buy me out it does offer some benefits.

1) She does not have the money to buy me out and will not be able to get the financing. She would have to pay me over many years. So there is the risk that the business will fail and she will not be able to pay.

2) My income will not be dependent on her ability to make the business run except for the royalties, which I consider gravy and do not think she will agree too.

3) I will have equity in the building which will be paid for by lessees and the business.

I do agree with what you said earlier. I need to get a business valuation to understand what my leverage is. If the value comes back very high I would imagine they would jump at my offer in order to prevent having to pay me a lot of money.

[Vanilla]

OK now you have some ideas.

If you want feedback please revert. If you want to ask Cadet to transfer ownership of thread to V, or another sudo it's ok.

V

[WhyUs]

Thanks V,

I always love feedback. It let's me know people care:) I have messaged Cadet to transfer the thread to you.

[Cadet]

Thanks V,

I always love feedback. It let's me know people care:) I have messaged Cadet to transfer the thread to you.

I don't think that is in my capabilities on this board, sorry.

The only thing V could do is start the thread again and copy and paste the posts you want in the thread.

Cadet

How long did it take you to turn your business around?

Was your Mrs Cadet involved in it and did you buy her out?

V

V

to answer your question, a little late.

My business turn around is still a work in progress.

Part of my divorce agreement was ownership of the business
in exchange of my acquisition of all the debt that was business and marital related.

So far I have paid off 2/3 of the debt, so soon enough I might start making money again.

[WhyUs]

No worries Cadet

I do not have a problem with it being in my name. I just figured more people would get involved in V took it over.

Cadet, do you mind telling me what industry your business is in? I do not want to pry, I'm just interested. If not, I understand.

[Cadet]

I am in a retail service and supply business.

Part of my business was also wholesale supply however that has really fallen off in recent years.

It also took lots of capital for a small profit margin.

[Vanilla]

Cadet,

A redesign capital usage could be helpful. I presume you restructured?

I am struggling, mine is a very labour intensive business. WH has done a great deal of fin damage. I am only just surviving and paying debts.

It's very hard to work this hard, if you understand my meaning.

Very tiring because of the long hours.

WhyUs I wanted to protect you, that's why I suggested the change. My strategy is in place WH is aware of it, so for me, if WH finds this thread, so be it. If he wants to post let him, it is his right to do so. I have no secrets and I call my sitch as I believe it.

I feel so sad for those who are so destructive to themselves and others. Fin being one of the most energy sapping.

V

[WhyUs]

V, I just assumed you were in the financial business. Do you mean physical labor?

[Vanilla]

No, I guess it's UK divided by the same language thing again, I need tax admin, scannng, fling, posting and bookkeeping staff. We call that labour.

At the top end qualifieds in tax, fins and accounts. We specialise in tax planning and we say "labour intensive".

My own specialism is insurance, pensions, tax, estate planning, investments and derivative products. I also train and undertake specialist advisory work in the international arena. I was once (pre WH) a big cheese and I lost my confidence. WH was so controlling I gave up the training and advisory work as he wanted to build a scaleable business where the value was not in my work only. The business isn't really saleable unless I had given service to any buyer.

I lost my confidence, how can a fat, ugly, unattractive, stupid and idiotic woman run a successful business?

She is now, as there is no choice.

V

[WhyUs]

And thank you for looking out for me.

[Vanilla]

Welcome

I am delighted to be part of your journey, it is my pleasure to be sharing with such a wonderful young man.

I may adopt you!!!

V

[WhyUs]

OMG V, I am hoping that is sarcasm on your part. You are an intelligent woman who is beautiful. If you were not across the ocean I would come over there and plant a big fat kiss right on your mouth if I thought that would change your thoughts.

Look, confidence drives attractiveness right. It is not the other way around. People are attracted to confidence in all arena's of life. The fact is, you have a lot to be confident about. People can't even touch your line of work because it is mentally difficult for most. Even the people who work with taxes, estate planning and investments don't even try to mess with derivatives. I know this because I am highly qualified when it comes to accounting and taxes. I know how confusing financial planning and investments can be.

V, your knowledge is superior to most. You know this and I know this just by the small amount of time I have spent on this forum. You have to embrace this and run with it. Customers come to people like you because they are uncertain. When it comes to their money people don't give a dang about how you look. They want to know that you know what the hell you are doing. Humans do not like uncertainty. All you have to do is take that uncertainty away from them. Confidence is displayed by you mannerisms, your attitude, and you knowledge.

Use your assets. Some people show skin and look sexy. You are not 26 years old so that is not going to work for you. You are motherly, you have compassion for people, you care about people and it shows. Use this to your advantage. Be confident in who you are. Your damn good at it. The good thing is that you do not have to fake it--you already do these things.

I wish I could take month off and come work with you in your business. It would be so invigorating for me. I have not gone 100% in a long time. I have been apathetic with my own job. I just feel inspired by the potential of your business. It just needs a kick start.

Yes, you may adopt me:)

[Vanilla]

I have thought quite a great deal about your post.

I put something about the emotional side of this on my thread to keep this one sharper.

emotional discussion around fins

I wasn't entirely being sarcastic, more pyrrhic. Yes, I am very good at what I do but there is damage in this which has caused destruction.

Your thoughts have made me understand that actually I could do with a good business partner, perhaps someone younger I could bring on to takeover the business.

I think you would enjoy as month in Vs crazy business, it is exciting, except for the admin not being up to date.

So plans for this three days of moving forwards until Monday.

V