What if you were given a choice? You could pay a legal lawyer $5,000 now or you could decide to wait and pay them $80,000 in two years’ time?
It does not sound like a great deal if you were to wait 2 years. And to be honest it’s not. But you will be surprised that so many take the odds only to regret it.
But it usually gets worse. Because, in addition, for no additional accountants or legals fees they get to cry a lot. The stress is free too. But the whisky or vodka they drink to drown their sorrows have to be paid for and that means the local bottle bank is overflowing and operating overtime. This needs to be added to the $80,000.
You may even have to join the local Alcohol Anonymous club.
Even when I give examples, people take the risk.
Here’s an example.
A while back clients of mine decided to set up a medical practice and came to me for advice on the best way to set up the practice. The idea was to open more practices. I got the impression that one was a good medical doctor and the other a good practice manager. But were they great as business owners? I did not get that impression.
My advice was they should spend time getting their systems and procedures right. More importantly, my advice was that they should see a lawyer and get a proper unitholders agreement in place. The unitholders agreement would determine each partners pay and responsibilities and, should they decide to separate and go their own way in the future, how the medical practices would be valued.
The cost of the unitholders agreement was $5,000. My clients decided it was not worth spending this and did without because (and this is the most popular reason) ‘we get along so well together.’
Unfortunately, some time after the practices were set up they decided to go their own way for various reasons. Who was right and who was wrong? Well to be honest at times both were right, and both were wrong.
It became extremely messy and complicated. Both partners were throwing accusations at each other and trust disappeared. They communicated via lawyers and were arguing about how the businesses should be valued. The person leaving wanted the highest value. And the person staying wanted the lowest. Obviously.
The business suffered too with income decreasing and staff leaving. In four weeks legal bills for both sides hit $80,000 before my own fees. Within no time it became $100,000 and they were nowhere near court. Then one side decided money was more important than principals and they came to an arrangement. Or maybe it was the energy being sucked out. Or maybe they had too much whisky. Or just ran out of Vodka.
But here’s the thing. We see this all the time.
And it can be avoided.
Out of every ten businesses I advise in getting a shareholders/ unitholders agreement prepared only one will follow through.
So, if you have a partner in your business and you do not have an agreement, don’t be surprised if you find yourself sitting in front of a person in a formal suit who calls themselves a lawyer and be prepared give them your salary. Stock up on some whisky and vodka too. You are going to need it. Or you can pay $5,000 now and have a good night’s sleep knowing should something go wrong at least there will be some structure.
Now I am not saying that if you have one of these agreements all will be well. It won’t. Because all divorces no matter how civil are still painful and costly.
The only thing you will have is less pain and less cost. It might mean you won’t have to sell your house fighting for what might be rightfully yours in the first place. Oh and the weekly trip to Alcohol Anonymous might not be necessary either.