3 Business Succession Planning Failures
May 01, 2015
By Daniel Zajac
Simone Zajac Wealth Management Group, LLC
Life has a way of not going exactly as planned. The unexpected curveball is always coming, in other words.
Let’s face it…none of us gets up in the morning with the thought that our spouse will file for divorce, our partner will decide they want nothing more to do with our business, or we will step into a crosswalk and get run over by a truck.
Yet, these things do happen, and if you haven’t taken the right steps early on in your business planning, the outcome could mean financial ruin for you personally, for your business, or even worse – for both!
The bottom line is that good business planning means planning for the unexpected.
We’ve talked in the past about the things that you need to do to protect your business so there’s no reason to reiterate that. Instead, let’s talk about the unexpected consequences of other life-altering events when you haven’t done the proper amount of planning.
1 – Your Business Partner Wants Out
Depending on what steps you’ve taken to protect yourself against a possible defection, you could be facing a long and rocky road. If you have a purchase and sale agreement in place with a business partner, then you’ll probably be able to weather this storm.
However, if you’re like too many other businesses, you’ve left this important decision on the table until “later”, and you’re now facing a disaster. Now, your business partner can essentially hold you hostage until they decide you’ve made a substantial enough of an offer to buy them out.
In addition to costing you more money than having the proper agreements in place would have cost in the first place, the time you invest in dealing with lawyers (which will most likely be required to resolve these problems) means time away from your business.
2 – Your Marriage Is Headed for Divorce
This is a big one: You’re likely to face a long and drawn out process that puts your percentage of the business on the chopping block. Unless you’re married to your business partner, you are likely to be forced to either come up with money to pay your soon-to-be-ex for half of your share of the business or in a worst-case scenario, you’ll be forced to sell your share of the business.
None of this sounds particularly appealing, but it could easily happen if you don’t take the time to make plans in advance.
3 – Sudden Death or Disability
Think about who will control your assets if you suddenly become disabled or die. Is this the person you want in control of your business (or worse, does your current business partner want to be in business with them)? Is that person even capable of running your business? Can they make the difficult decisions and keep the business moving forward?
If not, then there is a pretty good chance that your years of hard work developing your business might quickly be flushed down the drain.
Control What You Can
There are many “little things” as a business owner that you cannot control. Planning for the abovementioned scenarios is not one of those “little things.” Failing to make plans for the major life events that could cripple your business doesn’t make any sense.
As part of your overall business planning, make sure that you’ve taken control of your business’ fate and made an adequate amount of contingency plans. You simply don’t know what tomorrow is going to bring. The time you spend planning for the unexpected will pay off when it financially protects your business from those unexpected life events that could happen to anyone.