Risk Management: Contingency Planning & Buy Sell Agreements
What is contingency planning?
Addressing the identification, assessment, and mitigation of risks that could impact the organization's ability
to achieve its strategic objectives, and developing contingency plans to manage unexpected events.
Part 1: Buy Sell Agreements
While at an event yesterday, I struck up a conversation with the woman sitting next to me. Turns out she is a co-owner of a business with her soon to be ex-husband. She made the comment that when the divorce made it to the court docket, she was sure that the judge would award her half the business, and maybe more, since she was doing a good portion of the work.
I asked her 2 questions:
- Did she have a certified business valuation?
- Did she have her buy-sell agreement in place?
The response was...a blank stare. I spent a few minutes explaining the need for both of these two items above, as well as preparing and creating her endgame strategy. The commentary included adding value acceleration strategies so the business would truly be worth more by the time the divorce case went to court.
Having a buy sell agreement in place is crucial, especially since 50% of all businesses (from: Exit Planning Institute survey) will need to be exited INVOLUNTARILY due to Death, Divorce, Disability, Disagreements and more. Without a buy-sell agreement in place, what happens to the business the owner so painstakingly created and built up when the business is suddenly forced into an involuntary exit scenario?
Without a clear succession plan in plan, the entire business can fail in a heartbeat, possibly leaving the families of the owner(s) in dire need as the income disappears.
