Business owners working on exit planning and maximizing the value of their company for sale often take a wrong turn. Litigation is a nightmare. When we work with owners to sell their companies and advise on the value-building process, we find they are sometimes destroying business value without realizing the extent of it.
We are human beings – we get into disputes. This is America – people sue people. If you have been through business litigation of any sort, you know it is not pretty. In the end, it’s rarely worth it. You may be in the right, there may be real damages or loss of money and darn it, they should pay!
Certainly, there are situations in which you cannot avoid the dispute dragging on. It may be a substantial amount of damages or it may be a more complex situation tied to other potential liability. Often however, the relentless, unending fighting – especially going all the way to court – can reduce the value of your company. If each year over a few years you are paying $100,000 in legal fees and your net income takes a hit of $100,000, the reduction in business value can be in the hundreds of thousands of dollars.
- Revenue Decline: There is no question that you will be distracted by the process. Even with your attorneys handling much of the work, it will always be on your mind. Stress grows and you will have a less-than-100% focus on growing your business, exit planning and building value for a sale. Revenue will suffer.
- Bad Decisions: You will – consciously or subconsciously – adjust the decisions you make away from your best course of action because of the ongoing dispute and its implications.
- Attorney Fees: They add up very quickly – quite possibly ending in more money than it would have taken to just pay the *$*&* and get it behind you to focus on value growth.
- Brand Damage: The longer the fight continues, the more likely this will get out to hurt your brand and image, even if you are right!
36 to 53 percent of small businesses are sued in a given year. ~4 Small Business Statistics About Lawsuits – SmallBizDaily
So just forget it?? Well, sometimes, yes, as much as it pains you. Work with your attorney to make a fair offer, even go a little higher to get it settled! The investment can be worth it!
There are great attorneys who know that doing right by their client is to quickly come to agreement. Make sure your attorney is not encouraging you to fight without considering all options, the financial implications, and the effect on business value. Consider the options, despite your frustration. You may be on the right side of the dispute but don’t reduce the value of your business any further.
Don’t let one of these issues delay or derail your exit planning, value-building, and the sale of your company. Resolving these issues quickly will help you maximize value and move through the business transaction process more smoothly and quickly.
Call if we can help you think through your specific situation. Always happy to have a conversation to provide some guidance on the business sale process, business value, exit planning or building value for sale.
David Shavzin, M&A Advisor
Business Sales, Value Creation, Exit Strategy, Succession Planning
Founder and President, The Value Track, Atlanta, Georgia
Co-Founder and President, Exit Planning Exchange Atlanta
770-329-5224 // [email protected] // LinkedIn