“Sometimes you’re the bug, sometimes you’re the windshield”, said my friend Bret Mingo, was we walked down the streets of Annapolis on a beautiful Tuesday night. I was in town to help Bret and his partner, Chris Van deVerg, sort out back office issues for their company Core Communications. We were discussing another friend’s company that had broken up, and it had not gone well.
“The time to negotiate what will happen when you break up is before you get together, or soon thereafter”, Bret opined. “You have to make the deal before you know whether you’re the bug, or the windshield”.
Bret was right. Deals are much tougher to negotiate after everyone knows whether they are the buyer or the seller. Deals are much more difficult to negotiate after you know whether you are the partner left running the business, or the partner whose widowed spouse is left trying to raise the kids.
Life has a way of going in unexpected directions. I think any small business potentially benefits from considering, up front or early on, what will happen in many of the following situations:
- One partner wants to leave.
- The other partners want one of the partners to go.
- One of the partners dies.
- One of the partners is disabled, or can’t work for an extended period of time.
- One of the partners isn’t pulling their weight.
- One of the partners is arrested. Does it matter who the victim is? What the crime is? Does it matter if the person isn’t convicted? What do you do in between arrest and conviction?
- One of the partners wants to retire and be bought out.
- One partner wants to buy the other partner out.
- You want or need to bring a new partner in?
All of these are possible. The answers will depend a lot on the number of partners, the type of business, the corporate form of the business, and relative wealth of the partners, the relative working value of the partners, and a host of other factors.
In order to do this right, the partners will need advice from:
- A good accountant – to tell them the tax problems and opportunities
- A good business lawyer – to help them write a binding agreement that makes sense and is enforceable
- Possibly a good banker – to discuss financing realities of some of their choices
- Possibly a good insurance agent – to offer advice on other financing options for some of the issues: like life insurance, disability insurance, and retirement plans
I have seen a lot of bugs get hit by a lot of windshields in the last 20 years of working with entrepreneurs. Bret has too, and I’ll bet any entrepreneur or professional who works with entrepreneurs has seen it more times than they care to recall. It is always painful to see a company destroyed when it didn’t have to be, all because the partners didn’t negotiate a deal before the windshield was flying at one of them. By then, it is often too late.