The
Four Ds of a Business Exit Strategy
(Free Business
Valuation Tool)
How Will Death, Disability, Divorce
and Departure Impact Your Business?
 Those who have created a successful
business know it does not happen without
planning, hard work, and a little luck.
Yet most have no exit plan for leaving
their business. The truth is that most
business relationships do not have happy
endings. To have a successful business,
you must plan for all four D's of a
business exit strategy.
The idea that your business will provide
you with income after you are no longer
there may not be a reality. You have to
depend on yourself. Take the time to
look at the four D's of a business exit
strategy: death, disability, divorce,
and departing. To have a successful
business, you must plan for all four
D's.
The Four D's of a Business Exit
Death: The issue of the death of a small
business owner should be considered
during the start-up of a business.
Unfortunately, during the creation of
many buy/sell agreements the issue of
death is only addressed at the urging of
a life insurance agent. At the meeting,
you arbitrarily decide how much
insurance you can afford and how much
your company is worth, when in fact you
do not know.
Disability: Death is not as likely to
end the business relationship as
disability. Small business survival will
often take prescient over paying a
disabled partner. If the person is
important to the business, the financial
strain impacts the business and the
family who depends on the income.
Divorce: You can imagine the torn
feelings if a disability occurs, but
what if the partners cannot get along?
How do we split a partnership without
financially ruining each other? It may
be complicated by many personalities,
some may not even be a part of the
dispute, yet may be affected
financially.
Departure: You may all be happy working
together, but your partner or you may
decide to leave for another opportunity
or simply to take life easier. Who is
going to do the work? What is owed the
leaving partner? Where is the money
coming from? All important
considerations for your business exit
strategy.
A Fair Buy/Sell Agreement
For the small business owner, each one
of the four D's has special demands on:
family, income, taxes, and transfer of
control of assets. An agreement,
commonly called buy/sell agreements, can
be used to handle the four D's. The
concern of the family or income can
conflict with the business. The business
exists as a separate entity. Reduce
conflict by developing mutual fair
agreements and the desired level of
income.
Creating a Business Exit Strategy
Once you understand the four D's,
include the following actions in the
creation of your business exit strategy:
Consider incorporating your small
business to legally recognize yourself
and your
business as separate entities
Find a method of determining the value
of the corporation that can be done at
least
annually and will qualify under IRS standards
Develop an employee benefit plan that
will assist with the departure of each
partner in
case of death, disability, or retirement
Plan for who retains company ownership
and who gets paid off
The great American dream is to: build a
business of your own; bring it to life;
and make it successful. How you plan
your small business exit strategy will
determine your financial success. Just
as building a successful business takes
planning, hard work, and a little luck,
so does leaving it.
The size or type of business you own
doesn't matter. It is highly
recommended that you put in place your
exit plan when establishing your
business from the start. Don't
worry if this have not been done...It's
never to late to get your business in
order. Allow RealNova to
assist you with your business exit plan
today!
 |
