Disagreements occur, that is a fact of life.  It is how we deal with them that affects the outcome.

Disputes in business will affect more than the parties involved.  They affect employees, customers, and shareholders, and ultimately, the business itself suffers.

Disputes are nearly always centred around money or value, even those that may arise because of emotional or other non-financial factors.  So, the first step in any dispute is to determine the value of what is being argued.

This will establish a number of parameters:

• Is the argument worth the cost and aggravation?
• How much value can be lost if the argument continues?
• Can the value be realised by either party?
• Is there a resolution whereby value can be apportioned?

Take a dispute where two partners with complementary but very different skills come together in a business.  If they have a falling out and need to separate, what is the argument about?  Say one is a builder and one is a draftsman, their skills might be complementary, but they are very different.  Neither can run the whole business by themselves.

The first issue to resolve is value, and by that we mean the value of the whole business as well as the relative value of each partner’s contribution to the business.  This may be difficult but will give you a starting point.  Quantifying the issues in dispute is the best way to focus people on an outcome.

If we continue the above example and the value of the contributions was equivalent, then there may be nothing to argue about.  Simply divide the business between the two partners.

But it’s never that simple

Let’s look at a business with two partners, where one partner is active and the other provided the capital to get the business started.  After some time, the business is successful and grows significantly.  Now the active partner resents the value she feels she is creating for the passive partner, as she feels that she is not being rewarded sufficiently compared to the now relatively small amount originally invested by the other partner to get the business off the ground.

The hard reality is the business is jointly owned and partners can’t renegotiate the past.  However, such disputes will arise.  Again, a valuation of the business should be undertaken; such valuation will consider the impact on the business of both the active and passive partners and could attribute a value to a third-party purchaser without the partners’ involvement.  This quantifies the issue, and in a way removes many of the emotional and other non-value factors and delineates the dispute so that parties can focus on an outcome.

Once quantified, the resolution could be as simple as an offer to buy out one of the partners.  Again, it’s never that simple.  Such disputes, if involving a significant value, often end up litigating.  We have had appointments in similar circumstances that have ended up in Court- appointed receiverships or administration.  This is a costly way to resolve an issue but sometimes the only way.  We have also found that litigation increases the stress levels of all parties and tends to lead to poorer decision-making by those parties.

In some instances where the partners agree and creditors will be paid in full, we ask each partner to put an offer to us and we then work out the best offer (as most offers have conditions attached) and sell the business to the successful party.  On other occasions, we have advertised the business for sale and allowed the existing owners to put an offer in.  Again, a sale is made to the best offeror.

Each scenario resulted in the owners getting less than they could have gotten by valuing the business and working out a solution.  This is mainly because legal fees and administration fees take a substantial sum out of any realisation.

So …

The moral of the story is if you have a dispute, quantify the nature of the issue and do a deal to resolve it.  dVT Group can help you through this process by looking at the valuation of the business, including the contribution by partners, and assisting with the process of negotiation and resolution.

Should you wish to discuss any of the above, please contact Suelen McCallum or Antony Resnick on 02 9633 3333 or mail@dvtgroup.com.au.

dVT Group is a business advisory firm that specialises in business strategy, turnaround, forensic investigations, and insolvency (both corporate and personal).