The three ways business owners lose the value of their businesses are conflict with co-owners, the loss of a critical owner, and failure to prepare for sale.
Owners reading this might be surprised to learn that the threats are preventable.
Most business owners know things could go wrong. What they don’t know is that the right kind of planning removes the existential factor of the threat. Many owners ask, why plan if you cannot predict the future. But if you plan you have practiced decision-making and can make good decisions no matter what happens. With preparation and the right reaction, a business can survive an owner conflict, the death or withdrawal of a critical owner, or the inability to sell the business. This survival is possible when there is an embedded decision-making process that produces and revises business planning as changes (expected and unexpected) occur.
Here’s what I mean.
A co-owner conflict doesn’t start the day someone lawyers up. It starts years earlier, when two owners who assumed they shared the same values discover they do not. One wants to sell in three years. The other wants to build something for the next generation. Neither said it out loud. Three years later, the damage was already done.
The death or disability of a critical owner is similar. Even if there is a buy-sell provision in place, it does nothing about the vacuum the owner leaves behind — the relationships and knowledge unique to that owner.
It is not the plan that enables success, but the process that implements and revises the plan.
The process is as follows. Owners articulate their values with respect to the business to one another. The owners embed a group decision-making process in the business. The decisions from that process create planning that is dynamic, communicating decisions to all levels of the business (Dynamic Planning). The long-term strategic planning results in an owner agreement containing buy-sell provisions that address foreseeable transition events. The short-term planning is based on managing the business so that a sophisticated buyer conducting a diligence investigation will find the business worthy of a high price (Prior Diligence).
Where to go from here
These three threats — no buyer, owner conflict, failure to change — are the subjects I write about every week in Owning a Business on Substack.
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