I like to walk my dog, but the other day when the time came, I decided not to. The disappointing reason was that when I looked outside, I could see lightning and hear thunder. At the same time, I saw my neighbor outside walking his dog and looking very unconcerned. I later learned that during the storm lightning caused a fire in a house near ours. I did not regret my decision not to go outside, but I do not think my neighbor regretted his (he was unscathed by lightning, and his dog was able to go on schedule).
We all have levels of awareness when we are more aware of foreseeable, adverse consequences and decide to take, or avoid taking, certain actions to reduce risk. My neighbor’s risk level was higher than mine, and his actions were different from mine. Had we both watched lightning strike ground between our houses, our actions might have been the same.
Business owners perceive the foreseeable, adverse risks of small business in different ways. Some owners, even though they are indispensable to the success of the business, choose to do nothing about the foreseeable, adverse risk that something may happen to cause them to leave the business with a negative result to the business. Death and disability are the most common risks but there are many others including changes in personal interests, family issues, and aging. Many owners are comfortable ignoring this risk, but most should not be.
There are ways to reduce the risk of the foreseeable eventual withdrawal of an owner indispensable to the business.
There should be employees, not owners doing the indispensable management and operational tasks that the owner is doing. Ideally an owner should not have management or operational tasks to perform in the business and should not be indispensable to the business. Not only does having an owner doing tasks indispensable to the business put the business future in jeopardy, but it also makes the business less valuable. A sophisticated buyer of the business will not pay the maximum value for the business if the continued success of the business requires the selling owner to stay involved.
There should be a written plan describing the decision-making process, strategy, entity selection, governance, owner buy-sell provisions, and succession provisions. The creation of this plan by using a decision-making process that becomes embedded in the culture of the business involves documenting a strategy that recognizes the values of the owners as they relate to the business, describing the goals that emanate from those values, and identifying actions to be taken to reach those goals.
The implementation of such a plan is described in detail in the Owning a Business Substack at rickriebesell.substack.com. The strategy of obtaining maximum value from owning a business is Prior Diligence. The planning is implemented through Dynamic Planning.