Don’t let the 5 dismal D’s hobble your business
No one likes to think about all the what-if scenarios in life. Most business owners have no plan for exiting their business at all, much less exiting in the face of conflict or tragedy. As you finalize your business goals for next year, make time to protect your business against the five dismal D’s.
Death
If you have a business partner, your buy/sell agreement probably includes life insurance stipulations with the business named as beneficiary. That way, the business can afford to buy out the deceased’s heirs in the event of an untimely death. Keep this arrangement up-to-date by getting a current estimate of business value and increasing your insurance coverage as necessary.
Divorce
I’ve seen people get divorced at all ages. I even met one business owner who’d been divorced five times! Again, this is where you can benefit by getting a regular estimate of value. That gives you a fair basis (and historical trends) to use if you need to split the value of your company.
Unfortunately, I’m not aware of any kind of “divorce insurance” other than a prenuptial agreement. Business owners in this position may need to buy their spouse out over time, redirecting funds that could have otherwise supported business growth. Alternately, they can pursue a recapitalization strategy, bringing in a business partner while still retaining part equity.
Disability
According to one insurance stat, you’re 3.5 times more likely to face a long-term disability than die a premature death. Evaluate your disability and “key man” insurance coverage, for you and anyone critical to the business.
Talk to your advisors and have a written plan for your business in the event you’re incapacitated. Who should run it during your recovery? When do you sell and who will run that process?
Disagreement
Business partners don’t agree on everything, and that’s okay until the health of the company is at stake. We sometimes see a rift forming as business owners near retirement. One partner becomes risk adverse while the other wants to double down on a big investment.
I’ve seen businesses stuck in limbo when two conflicted partners couldn’t agree on value. The company couldn’t be sold and the partners couldn’t buy each other out as long as their expectations were so far apart.
If you can agree on price, a partial sale becomes a viable way for one partner to exit the business. Private equity firms often place a premium on opportunities in which a key business leader stays on to foster new growth.
Departure
Business partners may have different timelines when it comes to exiting the business. Plan for this from the outset. Have conversations about when each partner expects to leave and create a plan to compensate that partner without hampering your company.
We all work so hard in our business taking care of all the day to day issues and this time of year even doing a little planning for the new year. Make it a resolution this year to protect yourself and your business from the 5 dismal D’s. You owe it to yourself, your employees and your family.
By Scott Bushkie
Scott Bushkie is Managing Partner and Founder of DealCoach.
With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers.
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DealCoach is headquartered in Green Bay Wisconsin with an office in Milwaukee Wisconsin and helps customers find out how much their business is worth with online business valuations and advisory services. Our business valuations also known as an Estimate of Value (EOV), help prepare buyers and sellers for the sale. DealCoach also helps business owners grow value with a Business and Market Analysis and plan for retirement, estate & financial planning, benchmarking, and strategic planning. DealCoach servers and has provided business valuations for businesses located in the United States and Canada.
We are here to tell you what you need to hear in order to make a well-informed decision with most likely the largest financial transaction of your life. Our team has over two decades of M&A experience, and we have been completing Estimates of Value for our clients for over nine years.