AboutTimmy Chou Expertise I am a experienced Mediator and a partner in a management consulting firm. As a mediator I work as a third-party neutral and specialize in partnership/shareholder disputes, management/labor issues, company culture difficulties, and family-owned business problems. I can help describe why alternative dispute resolution may be a good choice for you. As an experienced management consultant I may be able to offer creative ideas to help resolve your organizational and business problems and disputes. "If you say conflict, I say opportunity".
Question My wife and I are in a co-ownership LLC with her sister and brother in-law. Co-owners of an aerobic/fitness studio. Her sister previously ran a personal trainer business out of her home in the basement. Since we opened she has been running the personal training out of the business under the groups insurance policy and using the fitness centers name. Her sister hasnt paid the business a dime for running her business and to be honest no one is actually turning a profit yet besides what she pockets from her clients. Her clients are not members of the gym. Her sister is willing to give the business back 20% of her take. My wife and I purpossed several options but the main two are: she keeps 50% and gives the business 50%, which in turn is really 50% hers because she is half owner. The second purpossal is that we pay her a hourly wage and all money go to the business with her getting 20 dollars and hour for her time. She charges 40 dollars and hour per client. She likes neither option. Our last option was to remove all personal training stuff and no longer conduct her business out of our business. Advice and help please. I truely want to be fair, however I am not going to take the risk when the business gets nothing in return.
Answer Thank you for your question!
Mediators act as neutral third parties to disputes and never "get involved" in judging the merits of conflict, but merely use special techniques to help the parties decide how to negotiate their own settlement.
The case you describe here sounds typical and is exactly the sort of dispute that lends itself to mediation. Note that any issue of this sort may have legal implications and you may wish to consult an attorney.
It is best to have as much structure created at the outset of starting or building a business rather than in the middle because, as you have seen, there are inevitable assumptions and expectations created by each party. For your information, whenever people come to me for advice on how to start or build a business I talk about understanding clearly the agendas of the parties. I always urge my clients to have very specific structure designs and very specific sets of job descriptions tied to very specific rewards. In cases of "friends", even more so, and in cases of family businesses, more still.
In your case the need to adopt a prudent structure is very urgent. Smart people will hold a management retreat over several days or so to craft an appropriate structure. Anywhere you can work uninterrupted.
The notion is that as "friends" it is now the right thing to do to make sure we STAY friends and agree on how we are going to move forward. If you are in business, then act like it. Craft a concise business plan with very specific task lists and milestones and financial projections, and then identify who is going to do what tasks. A hierarchy
of management is inevitable and someone has to call the plays. Agree on where the buck stops and who has the authority to make decisions. If you have a body of trustees or directors, elect a Chairman or a President and empower him or her to act. Do not neglect to describe the procedures to dismiss someone (or if someone voluntarily leaves the group) and what happens under either of these circumstances.
Based on the business plan, there should then be an expected timeline of revenues associated with your business. Compensation must be appropriately crafted from what the business can generate. No one should expect any "perks" such as utilizing facilities, credit, insurance, business licenses or other things without an agreement about how the business is compensated.
The group should set a deadline and stay in the saddle until the issues are resolved, or until they are set forth by concensus of the governing body.
This is how things are done by people who wish to make both their business and their relationships a success.
Typically there are two issues that are treated separately. First is compensation. When people contribute to the business they should be compensated. Any prudent business model assumes that every person providing services to the business gets paid somehow and accounts for compensation in its projections. Likewise, any USE of the business is charged - usually to customers, but also to employees and owners. This requirement alone can forestall 90% of the disputes in small business partnerships. To set compensation rates, it is only necessary to benchmark the marketplace. If you had to hire for this position or that position, what would you have to pay? Once the REAL cost of operation is determined you can then figure out what you must charge others, including yourselves, for the use of business assets.
Using you example, if it is a sensible option, business wise, to allow private trainers to use the facilities, then perhaps you could look for other trainers who would also pay to use your facilities. If you did this, what would they be willing to pay? Would it be worth it to allow this at all? Would you allow everyone to use the business name to promote their private training? These types of global analysis can answer the questions about the wisdom of the conduct of the private training from a BUSINESS perspective.
Once this information is known, you are then in a position to assess what the proper baseline to use to assess the situation you describe. (or any other similar situation)
The other consideration inherent in the business is OWNERSHIP. Who owns what, and how much. I always treat this issue as a separate issue than compensation because it is measured and paid differently--usually from profits of the business after all the costs are fairly paid. It is amazing to me how often these two issues are mixed up. Ownership turns on percentage of investment and other issues not related to operations.
So (after this big lecture) you have proposed several solutions, all very reasonable. But can you see how you might approach the problem from a marketplace perspective rather than a more arbitrary 50-50 type deal. You have no problem with her making some money, I assume, as long as the business is not hurt by it, and as long as any use of the business assets is fairly compensated.
See if you have any luck with this method.
These are some ideas. Feel free to follow up with additional questions.
For your general information, the pros and cons of the types of dispute resolution methods follows.
GOOD LUCK!
Arbitration, Mediation, and Litigation
Arbitration: the referral of a dispute to one or more impartial persons for final and binding determination outside of the judicial system
Benefits of Arbitration:
Confidential, no public record
Limited exchange of documentation, information
Quick, don't have to wait for a court date
Arbitrators have expertise in the subject matter and are trained in conflict resolution
Cheaper than litigation
Preserves business relationships
Negatives of Arbitration
It's a compromise, no %100 winner
Complex arbitration can be costly
If not satisfied, may litigate the arbitration procedure
Poor results with an unskilled arbitrator
Both parties must agree to cooperate in the process
Mediation: the process by which parties submit their dispute to a neutral third party (the mediator) who works with the parties to reach a settlement of their dispute.
Benefits of Mediation:
Neutral mediator can objectively suggest alternatives not considered before
Parties are directly engaged in negotiating the settlement
Can be quicker than litigation
Less costly than litigation
Preserves business relationships
85% of American Arbitration Association cases mediated find successful solutions
Negatives of Mediation
may not reach a binding decision
unskilled mediator
Litigation: using the judicial system to resolve disputes
Benefits of litigation:
a clear winner and loser
uses a prescribed set of procedures
more predictable outcomes
is final
Negatives of Litigation:
waiting for court dates can do more harm
usually more expensive than mediation and arbitration
part of the public record
