muck Posted November 19, 2009 Share Posted November 19, 2009 (edited) "quitting" ...and... "doing something different and no longer doing what you were doing" ***************************** This came up in a recent discussion with my wife (about someone else's situation, not mine, fwiw). Someone told me recently that they were thinking of closing their business (which they had numerous people had invested millions of dollars in), because after years of slugging away at it, he felt it was having a very detrimental effect on his kids and his wife because he was not able to be with them for days at a time. The business had consumed years of his life and was going to continue to consume it for at least the next few years at least. For a variety of reasons, there really isn't anyone else who'd be able to run it (or would want to, it's a very specialized business) ... so the decision is to either (i) run the business to the continued detriment of his family relationships or (ii) fold the business, losing millions of investor capital in the process, possibly declaring a personal bankruptcy, and starting a clean chapter with a less demanding professional life and living in a lower-quality part of town (maybe even moving to another town due to the embarrassment of having lost so much money for so many people). As a result of this conversation, I was trying to think about how one would actually go about telling their shareholders that they were going to fold the company and they would possibly have a substantial (if not total) loss on their investment. [Note: This company was not more than 10-15% of anyone's investment portfolio, except the founder/chairman so the folding of the company shouldn't ruin any of the stockholders ... except, the founder has 100% of his assets invested in the company (i.e., he has nothing other than this business and his house) but he has mortgaged his house and taken out other personal and business debts (which he has signed on) and folding the business may force him into personal bankruptcy.] ***************************** Again, this is not my story. No fears. ***************************** If you were the founder of this business, and you decided to close it up and deal with whatever personal consequences that would come to you, how would you tell your shareholders that they were going to take a loss and that the loss may be a total loss? Edited November 19, 2009 by muck Quote Link to comment Share on other sites More sharing options...
AtomicCEO Posted November 20, 2009 Share Posted November 20, 2009 Can't someone else take over? Quote Link to comment Share on other sites More sharing options...
Chief Dick Posted November 20, 2009 Share Posted November 20, 2009 If the guy had sold the investors on the business and his willingness to work it and grow it, then he needs to seriously consider the problems he will face by closing the business. Option one, I think, is to sell the business. Option two, try to find someone to help run the business. Walking away and simultaneously screwing the very people that allowed you to have the business in the first place is bad form and bad karma. Quote Link to comment Share on other sites More sharing options...
muck Posted November 20, 2009 Author Share Posted November 20, 2009 Call a meeting, let them know the situation. Let them know what "you" were willing to do and not do. If they could find a solution, then cool. If not, end of business. Arguably, the shareholders wouldn't probably be able to come up with a consensus solution; pretty complicated situation. Won't / can't go into detail. It's not 'quitting', it's re-evaluating. Sunk costs are irrelevant if the business' outlook ain't that good. Good point. ************************ Can't someone else take over? If the guy had sold the investors on the business and his willingness to work it and grow it, then he needs to seriously consider the problems he will face by closing the business. Option one, I think, is to sell the business. Option two, try to find someone to help run the business. Walking away and simultaneously screwing the very people that allowed you to have the business in the first place is bad form and bad karma. Let's assume that there are no buyers -- the decision is to either run the business or stop running the business; no middle ground. ...and when I say "fold up shop" I mean take another job somewhere else, and put in a litle time at night and on the odd weekend here and there to tie up loose ends over the next several years to try to make a bad situation a little more tolerable...again, it's pretty complicated and I can't/won't get into details... So, based on what I know, here's how I'd handicap it: 80% chance the investors get back 90-110% of their original invested amounts over the next 3-5yrs if the guy keeps running the business (but he'd have to forego the majority of his income in the process; while I don't know the exact numbers, my guess is that he'd go from making around $180,000 / yr to making less than $30,000 / yr to get the investors whole; there is a good chance that he'd have to get a second job to feed the family). 98% chance they'd get back 30-50% of their invested amount over the next 5-10yrs if the guy keeps the business going (again, making only around $30,000 / yr for this one full-time job, plus whatever he could make from a second job). 2% chance they get back 90-110% of their original invesment over the next 3-5yrs if he folds up shop now and lets the chips fall where they may (i.e., he works at it 5-10hrs / week on nights / weekends, and gets paid nothing for this). 98% chance they'd get back at least 20-30% of their investment over the next 5-10 yrs if he folds up the shop now and takes another job (again, doing basic stuff at nights and the weekends). *********************** The bottom line: For the investors (which assumes they have no particular care what this guy's personal life is like, just the economics of the situation): Worst case = 80% loss (i.e., recoup only 20% of original investment) over the next decade Best case = 50% gain (i.e., recoup 150% of original investment) over the next 3-5 years For the business manager (which assumes that while he wants to recoup the investment for his shareholders, he won't sacrifice his family for it): Worst case = not seeing his kids grow up and becoming increasingly distant with his wife because he's pouring into the business over the next 3-10 years and further, he'd be getting below market wages for above market effort Best case = investors get 80-150% of their money back over the next 3-5 years (partly because they allow the guy to hire some more help, even though that was not part of the original bargain) and he personally gets paid like he has been while winding it down over the next 3-5 years Quote Link to comment Share on other sites More sharing options...
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