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Do You Have Contingency Plans?
1. The Chairman’s View: Do You Have Contingency Plans?
by R. Thomas Stocker
Suddenly it happens. Judgment Day. Are Succession planning is something every
you ready for it? It comes in many shapes business needs regardless of lifecycle. If
and forms. Some you can control, others you remember in my last article “Are You
you can not. But regardless, will your an Octopus?” I discussed the tendency of an
business survive? The way you want it to? octopus to be alone in all decisions large or
small. Succession planning is the farthest
If you’ve been diligent about planning, the thing from that owner’s mind. But what if
answer is probably yes. But if not, maybe. something happens to you? Will your
I’m not talking about fires, floods, ice business be able to survive? Is your spouse
storms or any of the other countless natural equipped to jump in and lead? Is it fair to
disasters that can affect one business or an them? Are there key employees who are
entire region of businesses. I’m talking involved with your overall strategy,
about personal planning. execution and familiar with the financial,
sales, operations and marketing plans? If
One big area of surprise is business not, your legacy will most likely be a closed
valuation. Many owners are legends in their business with little value.
own minds. They have an unreasonable
view of their business’s value. Everyone Another subject I hear over and over is buy
would love to have a business worth 10x. and sell agreements among partners. It
WOW! But what if it’s really only worth 1x doesn’t matter if your partner only owns a
or 2x or asset value? Have you been small piece of the business, owns most or
providing your wealth manager with 50%. Do you have a buy & sell agreement?
realistic valuations? How do you know? And if you do, do you review it at least
Unless your wealth manager gets annually? Is it funded? If you say no, you
independent verification, they will use your are not alone. I find it more common that
estimate to make all those cool projections small and even mid-size businesses either
for your retirement income…and don’t have them, they aren’t funded or they
statistically, your business represents 80% of are seriously out of date. So answer this
your net worth. Projections that predict you question; if your partner were to pass, are
can retire very comfortably, and fulfill you comfortable being partners with their
everything you have dreamed about. So, if spouse? Their children? How about their
you’ve been using a 5x multiple all those estate or probate lawyer? Because without a
years when your business is really only buy & sell agreement, that’s who you will
worth 2x, surprise! What do you do? be a partner with.
Maybe you can forego retirement for a few
more years, maybe you retire poor, maybe Do you care you have to sell the business to
you don’t retire. Perhaps you or your meet the terms of the buy & sell? If it hasn’t
spouse’s health will determine that for you. been funded, you lost your gamble. You
Bottom line, you should get a valuation of outlived your partner. Now you need to pay
your business done every few years, their estate. How will you do that? Term
certainly no longer than five. life insurance is a very reasonable way to
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