When you and your business partner first started laying the groundwork for your future enterprise, you likely never envisioned a time when the two of you would be parting ways. However, because 70% of all business partnerships fail, it is critical to have a contingency plan in place in case things go south.
Like any relationship, a business partnership will have its ups and downs and may ultimately come to a natural end. Whether or not the separation is amicable, having an established blueprint for moving forward ensures each party can go their separate ways with as little hassle as possible. A key element of that blueprint is making sure your financial records are managed meticulously so that your assets are protected.
This is especially true if one partner plans to remain with the business while the other moves on, because it ensures everyday operations will carry on as normal. The last thing you want is for your clients to experience delays or lapses in communication simply because you are scrambling to maintain the foundation of your business in the wake of an unexpected separation.
Why do business partnerships fail?
Business partnerships may come to an end for any number of reasons. It may be that one partner is ready to retire while the other wants to continue working and growing the company, or there may be a change in life circumstances that prompt the need for someone to go in a different direction.
On a less positive note, business partnerships often fail due to a loss of trust resulting from dishonest conduct, a breakdown in communication, or a difference of opinion over operational or financial decisions.
Regardless of the reason for the business separation, one of the biggest challenges is determining how the assets will be divided so that all parties are able to walk away feeling satisfied. However, if you and your partner failed to invest in proper accounting controls from the start, this may be more difficult than expected—especially if one partner is contesting their share.
We can help when things get out of hand.
Through meticulous forensic accounting, the team at Mangold Anker Phillips was able to resolve a challenging partner separation case for a specialty import business. In this case, one of the founding partners started a competing business utilizing the resources of the first business. When he exited, he believed he deserved more than what he was receiving, and the partner remaining with the business came to us to protect his assets.
As is the case with many small business enterprises, the business owners failed to invest in proper accounting controls from the beginning, including quarterly analyses and financial statement reviews. If they had, things likely would not have gotten so far out of hand that a forensic accounting team was needed.
The first thing our team of certified public accountants (CPAs) and certified fraud examiners (CFEs) did was read through the initial partner agreement and conduct a thorough examination of the records. Though the books were not perfect, once all of the numbers shook out we were able to determine that they had, in fact, been doing things correctly; expenses and margins were within norms, they had been reinvesting to grow the business, and there was no evidence of fraud.
We then performed a business valuation to calculate the financial worth of the company, which ultimately helped our team negotiate a settlement. The end result was that the business was able to survive and our client could return to his everyday routine with a clear understanding of the financial health of the company.
The moral of the story? If you think accurate accounting controls and bookkeeping are not worth the initial investment, think again. In the majority of cases like this one, businesses end up spending the same amount of money (if not more) to hire an accounting firm than they would if they had just invested in accounting services from the beginning.
Preparing for company ownership changes?
Organized business records are the key to a successful separation. As a full-service public accounting firm, Mangold Anker Phillips can help you navigate the road to change and ensure peace of mind throughout the business partner separation process. Protecting your business is our first priority, and our experienced CPAs and certified fraud examiners have in-depth knowledge of business law and the legal protections that can safeguard your assets today and in the future.
Contact us today to find out more.
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