Death, disability, divorce, disagreement, distress: Prepare your business for the unexpected.

martinwolf Guest Blogger

September 13, 2023

4 Min Read
The 5 Ds That Lead to Unplanned Business Sales
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Half of all M&A transactions are unplanned due to the Five Ds:

  1. Death

  2. Disability

  3. Divorce

  4. Disagreement

  5. Distress

As an M&A professional, I’ve seen this firsthand. Business owners put off planning for the sale of their business until it’s too late. They think they’ll never need to sell, or they’re afraid of the process. But the reality is, more than 50% of all business transactions are unplanned. And that’s often because of the Five Ds.

Death

When the owner or founder of a business dies, it will be a major disruption. The business oftentimes loses its key decision-maker, and there may be uncertainty about who will take over. To protect your business from the impact of death, you need to have a succession plan in place. This plan should identify who will take over the business in the event of your death and outline the steps that need to be taken to transfer ownership. The succession plan should also include a timeline for the transition, as well as a budget. It should be reviewed and updated on a regular basis.

Disability

If you become disabled, you may be unable to continue running your business. This could put your business at risk of closure, or it could lead to financial hardship for your employees and family. To protect your business from the impact of disability, you should have disability insurance in place. This insurance provides you with a monthly income if you become disabled, and it will help to cover the costs of running your business. The disability insurance should be enough to cover your living expenses and the expenses of running your business. It should also be renewable so that you can keep it in place even if your health changes.

Divorce

Divorce is a messy and expensive process, and it will have a significant impact on your business. If you are going through a divorce, it’s important to have a plan in place to protect your business assets. To protect your business from the impact of divorce, you should have a prenuptial agreement in place. This agreement outlines how your assets will be divided in the event of a divorce, and it will help prevent disputes over your business. The prenuptial agreement should be drafted by an experienced attorney who can help you to protect your interests.

Disagreement

Even the best of friends and partners can disagree from time to time. When disagreements escalate, they can damage the relationships between business owners and lead to the dissolution of the business. To protect your business from the impact of disagreement, you should have a lock tight shareholder agreement in place. This agreement outlines how disputes between shareholders will be resolved, and it helps to prevent disagreements from getting out of hand. The shareholder agreement should be drafted by an experienced attorney who can help you to protect your interests.

Distress

Any business owner can experience distress at some point. This could be due to financial problems, personal issues or other factors. When a business owner is in distress, they run the risk of making poor decisions that could harm the business.

To protect your business from the impact of distress, have a crisis plan in place. This plan should outline how you will deal with a crisis, and it should include steps to protect your business assets. The crisis plan should be reviewed and updated on a regular basis so that it is always up to date.

No matter what the reason, unplanned business sales are costly for the business owner — and they often don’t get the best price for their business. They may also lose control over their legacy. That’s why it’s so important for business owners to plan for the sale of their businesses, even if they don’t think they’ll ever need to sell.

Here are some tips for planning for the sale of your business:

  • Professional advice: An M&A advisor can help you assess the value of your business and develop a sale strategy. They can also help you negotiate the sale and close the transaction.

  • Business plan: A business plan helps you document your business’s financial performance, operations and strategy. This will be helpful to potential buyers and will also help you stay on track with your business goals.

  • Your financial house: Potential buyers will want to see that your business is financially healthy. This means having clean financial statements and a good credit history.

  • Marketing your business: Once you’re ready to sell, you’ll need to market your business to potential buyers. This may include advertising, networking and attending industry events.

Planning for the sale of your business can be a complex process, but it’s important to do your homework and get professional advice. By taking the time to plan ahead, you can ensure that you get the best possible price for your business and that you’re able to achieve your financial and personal goals.

This guest blog is part of a Channel Futures sponsorship.

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