Tom Garrity

There seems to be a false notion floating around – and we all buy into – that somehow, we’re going to get everything in order tomorrow. That tomorrow, when we wake up, it will be the perfect day, where we will have ample time for the planning and legal work needed to minimize risk in the future.

We talk a good game, but that’s not what happens. Life is messy and full of distractions.

Today will not go as planned. So, what was planned for tomorrow remains undone for yet another day. I’m not referring to mundane tasks. I’m referring to the heavy lifts in business around succession, governance and transition that most owners just do not want to tackle. There is always tomorrow, they say, until there’s not.

As a family business owner, it’s critical to understand there are events that will affect the transition of your business. In fact, one out of every two reading this blog will be impacted by an event beyond your control. And if you haven’t run through the checklist to prepare your business, you’re not only putting the business at risk, but your family as well.

Think all this is a bit dramatic? Below are REAL situations I’ve witnessed over the years:

  • Owner/husband died under the current shareholder agreement, but his wife remained a minority shareholder even though she worked every day by his side.
  • No insurance in place for the employees to buyout the family and continue the business.
  • No succession plan because the owner stubbornly remains the hub despite failing health.

Yes, we talk a lot about the 5Ds – Death, Disability, Divorce, Distress, and Disagreement – with good reason: all business owners will exit their business, yet only half will do it on their terms. The other half will scramble.

And, by the way, a 5D event doesn’t have to happen directly to you to disrupt the business. Think about the fallout if it involved:

  • A key member of leadership team; tribal knowledge gone and no documentation exists.
  • Ownership member and the shareholders agreement is out of date.
  • Family member owner who can’t step away to grieve or care for a loved one.

Begin by adopting the mindset of “my business is always for sale” (and, actually, that’s the way it should be.)

Working with the mindset that your business is always ready to be sold means:

  • You’ve got great financials.
  • You play in a growing market.
  • You have a competitive advantage in the marketplace.
  • You have limited customer concentration.
  • You have customers who repeat and refer.\
  • Your business generates cash like a spigot vs sucking it out like a drain.
  • You’ve got a strong cash balance and balance sheet.
  • The business doesn’t rely on you as the owner.
  • You have good governance in place, with an ownership council, a board of directors, a family constitution, and a family council.

All these things will not only make your business successful today, but attractive to potential buyers as well, including internal successors. Ultimately, building a business that’s transferable means that it can run without you and that’s also the best way to survive one of these 5Ds.

Do the right things – the hard things ­– to position your business for whatever life throws your way. It will be more financially successful, more fun to operate and will better protect those you love.

Life is messy, but the future of the business doesn’t need to be. Make the commitment to tackle one “what if” today and check it off your list so it’s done.

Tom Garrity is managing partner at Compass Point Consulting LLC in Hanover Township, Northampton County, Pennsylvania. He can be reached at tgarrity@compasspt.com.