Your Business: Will It Have A Happy Ending?
"Begin with the end in mind," says Stephen Covey in his book Seven Habits of Successful Living. Those who have created a successful business know it does not happen without planning, hard work, and a little luck. Yet most have no plans for leaving their business, ever.
Entrepreneurs are optimists, but all of us will stop work one day. The truth is that most business relationships do not have a happy ending. The question is: Will it happen as I want or will it just happen?
Research in the UK indicates that 75 percent of small to medium-sized businesses have no exit strategy. In Canada, 92 percent of entrepreneurs say it is a good idea to have an exit strategy, but only 44 percent actually have one. In the US, more than 20 percent of small industrial business owners had not even thought about exiting their businesses. Even professionals like physicians, dentists, and veterinarians are ill prepared for exiting their practices. A survey of this group indicated that 96 percent believed that poor planning left them unable to exit their businesses on their own schedule.
Life shows us that we have to depend on ourselves. Yet we continue to believe someone else will someday take care of us. We will live on Social Security and income from the business that we created. The idea that your business will strive on to provide you income after you are no longer there is to believe that you have money in a Social Security account. Your company will not work for you after you are gone and there is no money in your account with Social Security. Still, we believe. It is time to look at reality.
You will leave your business in one of four ways. I call it the "The Four Ds of Leaving:" death, disability, divorce and departing. To have a successful business, you must plan for all Four Ds.
For the individual each one of the Four Ds has special demands on family, income, taxes and transfer of control of assets. The concern of the business is different. Your business is a separate entity and your concerns for family and income will conflict with the business desire to continue. The solution to the problem is mutually fair agreements and enough money.
Fair agreements that take in the concerns of all parties negotiated at the beginning of a business relationship will allow the participants to handle transitions when relationships change. And relationships will change. The agreements, commonly called buy/sell agreements, are used to handle the Four Ds. Unfortunately, many buy/sell agreements only address death 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.
Death is not as likely to end the business relationship as disability. If the person is important to the business, the financial strain is felt as keenly by the business as by the family who depended on the income. If the business is faced with choosing between survival or paying the disabled partner, it will survive.
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.
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?
A number of questions cannot be handled in this article, but there are certain things that must be done: - The business needs to be incorporated into a formal relationship that legally recognizes that you and your business are separate entities - Devise a method 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 - Finally, if we cannot get along or simply want to leave, who gets the company and who gets paid off and in what manner? If you think these decisions are hard now, try to make them in the heat of the moment. You have to think as if you are the one who wants to leave as well as the one who wants to stay. It is not easy.
The "Great American Dream" is to create a business of your own; to bring it to life and make it successful, financially. A truly successful business is one that makes you financially independent. How you leave will determine your financial success and that of your family. Just as building a successful business takes planning, hard work, and a little luck, so does leaving it.
Brent Dees, CFP, CSA is president of Brent Dees Financial Planning, http://www.brentdees.com, and a coach to small business owners, teaching the Focus Four system of personal and business goal-setting.
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Strategic Planning Information:
Related Articles
Consolidation in the Software Industry is Hardly New: Obsess About It or Risk Losing it All
Some analysts credit [Larry] Ellison with anticipating the consolidation in the enterprise software industry and leading the charge. Ellison 'called a major shift in an entire market, which was impressive.
Why Six Sigma Will Work in Healthcare
If ever there were an industry where we want zero defects, it's healthcare. Patients, medical professionals, and healthcare administrators all want mistakes eliminated and quality and efficiency improved.
What Every Service Provider Ought To Know About Writing A Business Plan
It's easy to lose sight of what needs to be communicated to prospective investors when writing the various sections of a business plan. Successful business owners/entrepreneurs use each section of their business plan to work up interest, to present arguments and, most important, to build trust and confidence.
I Always Play by the Rules and It Stinks!
This week I coached a wonderfully lovely woman I'll call Jill. She's a bright woman, very compassionate and sweet.
3 Undercover Ways to Make Big Profits from Your Competition
You have heard that there is extra money on the table
marketing products related to yours. You have also heard
that your direct competitors product is off the table.
Why Do a Business Plan?
To Grow (Catapult) Your Business That's Why.When it's in your head it's not as likely to happen--too much missed.
Business Process Methodologies
I've either been involved with or held a process-related role since 1994. It started in the government with TQM (Total Quality Management).
Innovate Today for Great Leaps Forward Tomorrow
How often does your company make a quantum leap forward? My guess is that, on a scale from "frequently (10) - to - never (1)" the answer is much closer to "never" because few companies have a process to innovate or think creatively. Very few attempt to formally think through their business model, their relationships with staff, clients, and vendors, and their product / service offerings.
Attributes of Companies You Dont Want to Buy!
There are no "rules of thumb" in the pursuit of companies to
buy. Each purchase opportunity has to stand on its own merits.
Corporate Venturing For Emerging Growth Companies
The boom of the dot-com era in 1999 brought the emergence of
corporate venture capital as a major source of funding to the
private equity markets. Corporate venture investments peaked
in the third quarter of 2000 with 608 deals totaling a combined
$4.
Going Self-Employed - A Few Handy Hints
The day you decide to take the plunge and work for yourself will be one of the most life-changing choices you ever make, whether starting a company large or small or as a freelance; from the very first moment of being self-employed, you and you alone will stand or fall by your decisions and actions. You will be responsible for steering your business through all its ups and downs, good times and bad times with no guarantee that everything will turn out right in the end.
Mastermind Your Way to Success
What do Mark Victor Hansen, Robert Allen, Anthony Robbins, Andrew Carnegie, Henry Ford, Thomas Edison and Ben Franklin have in common?They all leverage the power of the mastermind team.The mastermind works on the concept that two (or more) heads are better than one.
Offense: Beat the Odds
When in doubt, cut that out! Yeah, yea, doubting Thomas may have had a point in his day, and life may not be what you want it to be, but if you constantly doubt yourself, how can you accomplish anything?Where is your confidence? What possible good can come from taking the negative aspect of any situation and growing it into acceptance?Purpose of achievement is to attain a goal. So, if you set your goals and strive to get there, it should be assumed that you are moving toward your goal (at least so far as intent) no matter what you are doing, right?I vaguely remember an instructor from college saying once, "If there are two ways to take something, always input the benefit of doubt and assume the better more optimistic choice is the right way to take it.
The Chasm of Change---- Restructuring ----- The Goliath
Richard L. Daft one of the country's recognized academic leadership experts raises the question, "What kind of people can lead an organization through major change?" A Turn-A-Round restructuring qualifies as major change and requires transformational leadership.
Writing a Business Plan for Success in Business and for Funding
Writing a business plan to help you direct and manage your company is a key part of starting you new company that will help lead you and your company to success. Creating a "living and breathing" business plan makes that success even easier to reach.