Do you and your directors have contingency plans?

An accounting specialist has urged all business owners to put in place precautions to safeguard their business and its co-directors should something terrible happen, before it’s too late.

Melissa Browne, founder and CEO of Accounting & Taxation Advantage (A&TA) told My Business that rose-coloured glasses between friends or family members going into business together can cause a great deal of unnecessary heartache and damage should relations break down for whatever reason.

According to Ms Browne, this is a broad problem that affects a lot of start-ups and small businesses.

“I think it’s regardless of industry and business type. I’ve seen everything from trades to personal services to the creative industries... both for friends and unrelated parties that go into business together, there is the potential and I have seen issues,” she said.

“One example that I’m thinking of was friends that went into business together, and one of them actually became unwell. The other one wanted to support the one that was unwell, which of course they would. But then they ended up resenting the fact that they couldn't put in the same effort, and wanted to buy them out, and the person that was sick didn't want to go, and it really fractured the friendship and it became quite toxic, and the business definitely suffered as a result.”

She said that having plans for difficult circumstances such as the death or illness of a partner, a co-director wanting to exit the business, the marriage breakdown of a partner, etc, creates certainty for all parties and gives the business the best chance of continuing to trade uninhibited.

“I’ve had conversations with very, very savvy business people running multimillion-dollar businesses that simply forgot, or, for whatever reason, didn't have shareholder agreements made up in the first place. And if they’ve had an underperforming shareholder in their business, it can become difficult for them to exit that shareholder because there is no agreement in place,” Ms Browne said.

“I think we need to have those awkward conversations: it’s not a pre-nup, you’re not saying that you’re not going to get anything if something happens; you’re saying, ‘If something bad happens, this is what we’re going to do about it’.”