Forming or starting a business can be a great learning experience for many people, as it requires you to start something with a plan for how it ends. That is, as popular author Stephen Covey would say, “Begin with the end in mind.”
What that means is that any long-term successful business needs to have contingency plans in place for what happens when an owner leaves or sells the business.
That is where the acronym DICE comes into play. Business exits generally happen because of one of these four reasons:
Death – When an owner dies, it is a sudden, traumatic event, and without a solid plan for what should happen, it can throw a business into jeopardy.
Injury – Sustaining a permanent injury or disability can take an owner away from being able to run the business temporarily, and even permanently.
Corporate Divorce – Arguments and fights are a normal part of any close relationship (business partners, roommates, marriages), but they can and do get out of control.
Exit – This is just like it sounds. Perhaps an owner wants to retire, or simply look for a new business venture, but plainly put, someone wants out.
All of this factors into selling a business since obviously plans will need to be in place in case one partner wants to sell and the other does not, and also because any potential buyer will want to see that there are plans in place to deal with these eventualities.
So, How Do You Plan for These Things?
Well, any business plans will need to be drawn up by an attorney, but even just sitting down with all managing partners and discussing the following will help.
Look into incorporation – This can allow you and your business to be counted as separate entities
Form employee benefit plans – These can include stipulations for retirement, death, injury, etc.
Decide who gets paid off and who stays on – If both partners want out, then that works too, but often one partner will want to stay on and continue to run the business
Determine an IRS-friendly way to find out the value of the business, and do it yearly.
Any major decisions such as selling or exiting a business should be run by a qualified business attorney, so if you ever have any questions, do not be afraid to get in touch with one today.