5 Signs Your Small Business is Headed for Divorce

A small business divorce can lead to  big trouble. Here’s what to look out for.

Separation was certainly not something you had in mind when you and your spouse started your business — and even if you had considered it, you probably also assumed you’d be able to work things out peacefully between the two of you. But you can’t always predict the future and now you’re in the unfortunate position of having to decide whether or not to go on as business partners, even though you’re no longer partners in life.

It may be possible to continue working together, but in many cases, when you’re going through your divorce, so is your company. It can have a direct effect on your employees, your other business partners, and sometimes even your clients. Here are some symptoms of a small business marriage on the rocks and some tips on how you can keep from finding yourself in the same situation and prepare yourself for the best possible outcome.

Didn’t Sign a Prenuptial Agreement

It sounds like the opposite of romantic, but for small business owners, a prenuptial agreement is just good sense. It addresses many of the questions that come up in a divorce long before they’re raised. It can keep the division of assets clear and organized throughout what’s  invariably a high-stress process, minimizing the negative effect the split may be having on employees, clients and outside partners, and therefore relieving tension and increasing the odds that the company will survive the divorce.

A prenuptial agreement isn’t a necessity in every relationship, but where there’s a pre existing small business involved, such an agreement may be an invaluable investment in the business’s long-term health.

Projects on Hold

If you’ve noticed that production has slowed, it may be a sign that the company’s value is in the process of being ascertained. If either party is trying to put a value on the business, the sheer question of value could stave off productivity and keep things at a halt until certain factors are settled upon. This could lead to a loss of business, a lowering of morale and a devaluation of the asset (aka your business).

Experienced business valuation experts know to look for signs that income or business is being intentionally limited or depressed, however.  Keeping business moving during a divorce can be a strong show of good faith by the owner – that regardless of the ultimate value, there’s nothing to hide.  

Questionable Accounting

If the budget looks drastically different than when you approved it, and your input   feels unappreciated, chances are, there are larger issues at hand. The New York Times cites bad accounting as one of the Top 10 Reasons Small Businesses Fail.

Making sure that a small business’s accounting is solid and that its allocation of income and expenses is justified is an excellent way to help protect it in the long run.  

Changes to the Business Model

If one of the business owners suddenly makes drastic changes to the business model in hopes of decreasing the value, that’s a red flag in the court system that could put you at risk of losing your business.

Business valuation experts will take ownership interest and the ability to control the direction of the small business into account when assessing a value, but even minority stakeholders should be careful that their partners aren’t creating bigger problems by making questionable business decisions.  

Costly, Monetarily and Emotionally

You know better than anyone that time is money. If your emotional well being is at risk, you’re not being productive at work. Sure, small bumps in the road are to be expected, but if your emotional “spend” isn’t making sense, it may be time to call it quits.

Small businesses that rely on a “key man” only work when that key man is able to do the work.  An honest assessment of the time and effort necessary to do the work (and whether that’s possible) is crucial when considering the continued viability or disposition of a small business in divorce.

Sound familiar?

Not all of these symptoms mean the end of your small business in a divorce proceeding. Luckily, the experts at Babbitt & Dahlberg can guide you through this unpleasant process and lead you to the most amicable outcome possible. Let’s sit down and talk about your options. Call us to set up a consultation today  614-228-4200.