By ALAN J. ORTBALS
One of the last things entrepreneurs think about should really be one of the first, according to Pat Mathis of the law firm of Mathis, Marifian and Richter.
“When people come together to form a business,” Mathis said, “they really need to think about things like how they’re going to be compensated; will they have employment contracts; will they pay bonuses; do they have something in writing that outlines how they’re going to work together? And then long term do they have a buy-sell agreement? What happens if one of them wants to leave the business or becomes disabled? If they decide to sell the business, how do they value the business? How do they structure getting out?”
People don’t think about things like that in the very beginning of the business, added Mathis.
“They’re excited about their product or their service and they’re not taking a long-term view, but these are some of the first things they should think about,” he said.
Often, someone will call and say, “I’m going to sell my business. I’ve already worked out the deal. I just need the papers drawn up.” But, he says, that is the worst way to sell a business.
“Most people only sell one business in their lifetime and there’s a lot that goes into understanding its value,” Mathis said “For example, how to find the best buyers; how to get the highest price for the business; how to structure the sale from a tax standpoint.”
Mathis advises business owners to bring in professional help at the very beginning to help answer these questions, discuss goals, seek the best buyer and develop the best structure to meet those goals.
Kevin Richter pointed out, for example, that an individual owner may have concerns about selling a business to an outside party, worrying about what will happen to longtime employees. Another scenario comes into play when it’s a family business with multiple owners who don’t share the same objectives.
“We have seen a lot of different businesses scenarios and a lot of different family scenarios,” Mathis said. “It comes down to listening to what people are saying and trying to understand what everybody wants and what everybody needs and then crafting a structure that works for them.”
By ALAN J. ORTBALS