Tips to Avoid a Messy ‘Business Divorce’

9/27/2016 10:11:00 AM
By Jay Myers
When you start a business, there is a whole lot to think about. Whether it be financing, products, sales, competition, personnel etc., there is no shortage of challenges to deal with. But there is another issue that needs to be addressed that could dramatically affect the future of your business: how it’s structured. In the start-up days with my company, worrying about how the business was structured was one of the last things on my list. I just wanted to sell something and create cash flow. And yet it was an issue that caused a lot of heartache and stress just a few years later.
 
In setting up a business, there are a number of options that include LLC (limited liability corporation), S Corp, sole proprietorship, and partnership. After reviewing the options, I decided to establish a partnership with an individual who could help with technical support but also share the risk from a financial standpoint. It made sense at the time. But when the business started to grow, we ran into a number of serious problems. 

We tried to get the problems resolved, but it soon became painfully obvious that the partnership wasn’t working out. It was at that point that I was advised to “buy out” my partner and assume 100 percent of the control (and risk). Easier said than done! And in my case, the process was not only painful but personal as well.
 
So how can a business owner avoid a messy “business divorce”? Based on my experience, I believe partnerships really don’t work—a company can only have one boss. It doesn’t mean that building a solid management team isn’t important, but ultimately, there can be only one decision maker. Other considerations include: If you do take on a partner, make sure there is a “buy-sell” agreement (to establish price for partner stock); consult an attorney for advice on taxes, liability etc., and about how to build a company structure that works not just for today but tomorrow as well; and believe in your business and its future.
 
By setting up a company’s corporate structure early on, it not only makes good business sense, but it can lay the groundwork for a sustainable, profitable future. And that’s what owning a business is all about.
 
Jay Myers is the founder/CEO of Interactive Solutions, Inc. (ISI), a Memphis-based firm that specializes in videoconferencing, distance learning, telemedicine, and audiovisual sales and support. He is the author of Keep Swinging: An Entrepreneurs Story of Overcoming Adversity and Achieving Small Business Success and Hitting the Curveballs: How Crisis Can Strengthen and Grow Your Business.
 

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