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Avoid the Dismal Ds – Maximize Wealth with Exit Planning

Sooner or later, every business owner exits their business eventually, 100% guaranteed.  However, most business owners leave value on the table when they exit their businesses.  The lack of proper exit planning forces most owners to sell their business because of the Dismal Ds: Death, Disability, Divorce, Disagreement, Distress, and more.

There is an expression, that unfortunately, is very true: “Business owners seldom sell their business too soon, but they frequently sell it too late.”  It has been our experience that many business owners do not plan far enough in advance to maximize their after-tax proceeds when selling their businesses.  Instead, they wait until reaching The Dismal Ds – after experiencing a “hardship” (50% of all exits are not voluntary), or receiving an offer out of the blue without proper preparations to accept or negotiate.

This is not how a privately held business owner would choose for their inevitable exit. The famous Roman philosopher Seneca once said: “Luck Is What Happens When Preparation Meets Opportunity”.  How well owners prepare their business for sale and control the business sale process determines the amount of wealth owners can realize from the business. 

So, do you have an exit planning process or a written down exit plan?

Business owner exit readiness facts

In a recent survey conducted by the Exit Planning Institute, 99% of owners AGREED with the statement: “Having a transition strategy is important to both my future and for the future of my business.”  Yet, 94% of owners have no personal plan for life after the business sale, 79% have no written business transition plan in place, and 48% have done no planning at all. These facts are unfortunate, especially when considering most owners have poured years of their lives into their businesses, which is the majority source of their wealth.

Does your business store most of your family’s wealth?  How prepared are you or your business for an exit?  Do you have an exit plan written down?  How prepared are you to meet future opportunities?  In another word, are you ready to be lucky?

David Qu is an M&A expert and strategy advisor with comprehensive business experience in various industries, markets, and business functions. He gained expertise from decades of hands-on operational training, management consulting, and senior corporate executive roles with well-known global companies. As a trusted partner and expert advisor to his clients, he brings strategic insights, practical expertise, business management know-how, and execution blueprints to help you maximize the value from the sale of your business. Contact us to learn more.

What are the Dismal Ds?

The Dismal Ds refers to common life scenarios that happen to everyone at some point in their lives.  It refers to the unplanned but inevitable departure from the biggest D – Death. That isn’t the only D, however. There are others, none of which lead to a controlled, lucrative, or enjoyable business transition in life. Most Ds start with dis- defined as “dis– 1. a Latin prefix meaning “apart,” “asunder,” “away,” “utterly,” or having a privative, negative, or reversing force.”

The main five Dismal Ds are Death, Disability, Divorce, Disagreement, and Distress.

Dismal Ds: 1 – Death

Death is inevitable in all our lives. In the context of business ownership, imagine right now; you are on a plane for a business trip or vacation, and it crashes. What do you want your family, management team, and ownership team to know? What happens to your loans? Are the beneficiaries on your assets and life insurance correct? Who should family and management talk to for advice? Do you have a documented plan for those impacted by this event? What obligations does your business have to your estate for the value of your shares?

We never wish this scenario to happen to anyone, but life happens.  The very accident happened to an ex-colleague of mine.  His plane crashed in Africa while on a Safari tour. He was accompanied by his wife and two daughters.  How unfortunate and my heart saddened.

Dismal Ds: 2 – Disability

Now imagine that you had a stroke and cannot talk or write. Does your family know where your important papers are? Do you have a power of attorney for financial and medical matters? Do others have essential passwords that enable them to pay your bills or interface with customers, vendors, etc.? Will this event invoke a purchase of your shares? How will they pay for your shares? Who has the right to vote for your shares?

Dismal Ds: 3 – Divorce

Assume that your spouse announces that he/she has grown apart from you and now wants to end your marriage while the two of you are still friends. How will you value your shares in a divorce? Do you have a prenuptial agreement? How will the changes in your finances impact the cash needs of the company? Do you know your options on how to create a non-adversarial process to make the decisions needed to unbundle your financial affairs at the end of a marriage and mitigate the impact on your business?

Dismal Ds: 4 – Disagreement

When multiple partners enter a business, is it all roses and rainbows? They rarely prepare for conflict with a productive exit clause. Like all relationships, business partners sometimes decide not to co-own a business. How will you value your interest? How will you pay it?

Dismal Ds: 5 – Distress

The COVID-19 pandemic has taught all of us some painful lessons regarding business interruptions and external threats we could never imagine. Many businesses suffered disruption to their business’s productivity and the delivery of their products. What was the strength of your backup system? What insurance did you have to cover business interruption? Good contingency planning includes risk reduction strategies and policies to protect against everyday disaster situations, including data breaches, property disasters, supply chain disruption, work safety incidents, and critical employee loss. How much cash do you have to cover your debt obligations when disruptions occur?

Additional Dismal Ds

Other Dismal Ds include the following, though the scenarios differ, the need to de-risk life’s undesirable and unexpected events remains.

  • Disease – the critical illness of the owner or an irreplaceable employee.
  • Disaster – Fire, flood, storm, or accident
  • Dishonor – financial or operational fraud or another skullduggery by an employee or partner
  • Disenchantment – A fancy word for burnout, unexpectedly
  • Debt – Leverage has taken on in good times but is no longer sustainable
  • Depression – Economic malaise (think hospitality in 2020.)
  • Defection– The poaching or bolting of a key employee, frequently in sales

We work with business owners together to create a plan that will “De-Risk” the negative impact of these events. Exit planning will help you assess what you currently have in place, what you may need to do as your systems grow and change, and why should you review the process annually. Contact us to learn more.

Exiting Planning Proactively De-risk the Dismal Ds

The exit planning process proactively prepares business owners for the unexpected.  The outcome is an exit plan that asks and answers all the business, personal, financial, legal, and tax questions involved in transitioning privately owned businesses. Good exit plans include contingencies for the Dismal D’s. Its purpose is to maximize the value of the business at the time of exit, minimize taxes, and ensure the owner can accomplish all his or her personal and financial goals in the process.

A good exit plan is actionable and relevant today, not just for the future.  It combines the plan, concept, effort, and process into a clear, simple strategy to build a business that is transferable through strong human, structural, customer, and social capital. Exit planning addresses the future of you, your family, and your business through creating value today and every day.

Contact us to learn more about exit planning and how it can help you extract the maximum value of your business to build generational wealth for you and your family.

How does exit planning helps owners maximize wealth?

When done correctly, exit planning equips business owners when opportunities present themselves in life, expectedly or unexpectedly. It helps the business owner understand the true value potential, focuses on value growth, and aligns business, personal, and financial goals. A successful exit strategy has three legs:

1. Maximizes Transferrable Business Value

Like all industries, businesses go through stages of maturity.  Visionaries form ideas after having foresee their value, invest to prove concepts, then cultivate them to build scale, and finally harvest the value after maturing the business.  Building businesses and creating value is a process that takes time and expertise, and the journey presents many risks (Dismal Ds). 

Exit planning is a process that helps business owners identify, protect, build, harvest, and manage value.  The effort creates tangible and intangible capital in the business, which will ultimately be used to determine the strategic value of the business.  Furthermore, this is an ongoing process that requires focused investments of time and resources every day.  Having a good exit plan is in many ways like having a good strategic plan.  Read my other blog here to learn more. The outcome guides business owners to accelerate value creation and strongly positions them at the negotiation table when opportunities present themselves.

2. Ensures Owner is Financially Prepared

Dr. Stephen Covey once said, “Begin with the end in mind”.  Exit planning helps owners identify personal and business financial goals, where setting goals is the first step in turning the invisible into the visible.  Good exit plans identify short-term and long-term goals, detail actionable steps for execution, and help owners measure progress along the way.   The process is a journey that helps business owners understand the business value, and how it is created and measured.  So, when an opportunity of the lifetime presents itself, business owners are prepared to confidently transition knowing their goals are achieved.

3. Ensures there is a plan for “What Next?”

Most business owners regret exiting their business shortly after mostly for one reason: not having a plan for life afterward. They find themselves with a lot of time and freedom, but nothing to do. Many business owners get “cold feet” at the closing table because they suddenly realized that their life identities are entangled with the businesses.  Wealth and money cannot solve owner identity questions, this is why most business owners wait until it’s too late to sell their businesses, leaving piles of value on the table in the end.  Exiting planning helps owners address these questions early to avoid cold feet or regrets.

Connect with us to learn more about exit planning and how it can help prepare you for a successful exit while extracting the maximum value from your business to build generational wealth.

About Rimonark Advisors

At Rimonark, we help clients maximize wealth creation through business valuation and assessment, education and preparation, and growth or exit planning advisory services. We are here to help our clients get ready for a successful business sale, get the most value, and achieve fruitful confident transitions. Ultimately, we clients harvest years of hard work by unleashing business cash flows and converting them into generational wealth. Contact us to learn more.

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