My wife and I recently finished updating our wills and trusts. It had been ten years since the last update. We have two grandchildren now that we didn’t have ten years ago, and some family situations have changed. We recognize, but refuse to accept, that our children don’t want much, if anything, of various keepsakes and mementos, even valuable ones. Our lawyer and our financial planner, separately, asked about our plans for the consulting business. As I choose to operate, as a solo entrepreneur, I don’t see the opportunity to exit with any value. They accepted that answer. What about YOU? I hope that is NOT your answer for a business you’ve spent years developing and represents a sizable portion of your future net worth.
You WILL exit your business. I say vertically or horizontally. Horizontal is not good and generally refers to unexpected disability or death. Vertical is often good as you sell to someone (partner, shareholders, employees, financial buyer, strategic buyer). Additional reasons are disagreements on the future of the business with partners, death, and divorce. The industry often refers to the five Ds, but I like the number seven and have seen a few more reasons for a company to change hands. I’ll briefly describe each
Through my SCORE mentoring, I’ve helped a few spouses pick up the pieces of the business they knew little to nothing about.
The chances of a fifty year old business owner being disabled is about 40%, while the chances of dying before turning 80 is only 6-7%. Last night we watched “STILL” about the journey of Michael J. Fox with Parkinsons disease from a young age.
When you started that business you thought it a good idea for each partner to have the same ownership and voting rights. Now that you have been in business for a while, that no longer seems to be such a good idea and one of the partners may want to get out rather than arguing incessantly.
Earthquakes, fires, floods, crashing cars and trucks. The list of potential disasters is growing as we deal with cybersecurity and computers that don’t work as expected.
This is a disagreement of an entirely different sort and often results in the business having to be sold to generate cash for one of the spouses. The divorce rate for first marriages is 40% if you get married before age 25, 50% if you have children, and 60% for a second marriage. It’s been difficult at times, but I’m glad to have been married for 46 years this past June.
Remember those people who loaned you money? They have rules, called covenants. Break them and they can call in your loan. I certainly hope you did not borrow from sources that break body parts when you break the rules.
Bankruptcy is one reason for dissolution. The U.S. Small Business Administration suggests 20% of businesses fail in the first year, 48% have failed after 5 years, and 65% have failed after 10 years. Another reason for dissolution is just deciding to get out of business. A friend had a cleaning business run by he and his wife and just closed the doors.
To succeed, you should do some planning. Just as my wife and I reworked our wills and trusts, you should work on your Business Wills & Trusts. These include paying attention to at least seven items:
- Articles of incorporation
- Buy-sell agreements
- Prenuptial agreements
- Training of employees
- Running a good business
- Having insurance of various sorts.
Plan for your business to be a success and succeed you.
Who WILL You TRUST to Run Your Business?