Two directors, two views on how to manage the business. What do you do?
This is a situation we often come across, where the two directors have differing views on how to take the business forward. Typically one wants to re-invest in order to grow the business, and the other needs to continue taking income to support his/her lifestyle; or perhaps the business needs to diversify but the two directors have different strategies and fundamentally disagree on the direction to take.
Such quagmires if left for long, lead to conflict between the directors, which diverts attention away from running a profitable business, and can seriously impact on the value of the business in a short space of time.
What do they do? What are the options?
- Continue on, and hope they get through it
- One director buys out the other,
- The directors sell the company for optimum value.
Clearly option 1 has its risks and is not going to be enjoyable for the directors. However mediators and business strategy experts can be brought in as they are non-partisan to find the best solution for the business.
Disagreements between directors often arise out of different external pressures and personal objectives of the individuals concerned. Personal situations do change over time and therefore the best solution may be for the directors to go their separate ways.
Option 2 avoids the need to go to the open market for a buyer, however what happens if neither director has the financial resources to acquire the other's share? How do you value the shares? Finance can be raised through MBI/MBO funders, but how can the exiting director be sure he is achieving full market value for his share of the company?
Option 3 allows both directors a clean break and will probably be the best result for the business. The right buyer will bring both investment and new ideas to take the business on to the next level and will be able to make the right decisions.
Provided it is not too late, through using the right business broker and finding the best suited buyer for the business, the directors will achieve the optimum value for the company, and realise the value of their efforts together over the years. Often a buyer will prefer one director to remain involved for the continuity of the business. And if one director does remain with the company and retains an equity share, he/she could have a second bite of the cherry when the buyer eventually exits.
Last year we sold an IT support business. The two directors had entirely different visions for the future of the business and were not seeing eye-to-eye to say the least. As a result, much of the operational responsibility lay with one of the directors. A year on, one director has set-up a new venture pursing his vision; the other is working within the buyer’s organisation with the weight of responsibility for running the business off his shoulders.
We consider this a win-win situation for all concerned!
Do you know any business owners who are not seeing eye-to-eye with their co-directors? Do let us know.
Being good brokers, we like to think we can be good marriage guidance counsellors too! And by selling businesses for optimum value, we can help resolve conflicts.
