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Jan 31, 201911:39 AMExit Stage Right

with Martha Sullivan

Protect your value: Stage two of value maturity

(page 2 of 2)

Life insurance is also an important component of the Protect stage, particularly for the owners and other key personnel. Buy-sell and shareholder agreements routinely outline the parameters of who may buy the shares of the other owners and what occurs in the unfortunate scenario that one of the owners dies. Does your shareholders’ life insurance align with the agreement? Are policy levels appropriate for the current state and value of the business? Are you current with certifying the value of the business according to the agreement? If the answer is “no” or “maybe,” one task in your Protect stage should be to review and ensure that these elements are current and working together.

Insurance, however important, is only the first layer of understanding your operational risk. There are other risks to be considered, such as customer concentration, market dynamics and competition, data management and cyber security, reputation, and financial, to name a few.

Lastly, the risks threatening the transferability of the business demand top attention during the Protect stage. Mitigating your transferability risk takes the longest time to address. For example, if there’s too much dependence on you, the owner, or if your management team is thin in some way, transferability is seriously threatened. Strengthening it should be a priority. This involves hiring or training staff, transitioning responsibilities, and building competence and confidence in the team (and the team in themselves), which all takes time. Another example is enhancing your customer and supplier relationships so that there are multiple points of contact in your company, diffusing the risk of too much dependence on any one person for the relationship. Again, this takes time.

Stage Two is a stage of action, whether applied to an individual or to your company. If the Identify stage was Lyle’s wake-up call, then the Protect stage is where the rubber meets the road. In Lyle’s case, he needs to act. He must work with the physician to build a prescription, dietary, and exercise plan that addresses his blood pressure issues. Next, he must make the personal commitment to take his medications religiously, change his diet, and work out on the agreed-upon schedule. Then he’s got to do so.

Your business risks are similarly prioritized in Stage Two and segmented into a 90-day action plan. Accountability measures and routines are put in place to ensure that strong progress is made. Actions and results are monitored and adjusted so that the company’s health risks are mitigated.

There is a reason Protect is Stage Two, placed ahead of growing the business. Moving to Stage Three — Build — before protecting yourself is foolhardy and dangerous. It would be as if Lyle tossed away the medications, went back to his “McD’s is a basic food group” diet, and blew off the recommended procedures in the hope that the aneurysm will just go away. Anyone watching from the sidelines would rightly judge Lyle a fool. Yet how many businesses take on sales growth initiatives because “that’s what we do” and ignore working on the health risks facing the company because “I’ve got work to do”? That’s setting your business on a path of aggressive growth when the infrastructure can’t support it. In both instances, the stress could kill you.

Be wise, one stage at a time. Protect yourself.

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About This Blog

Spending half her career as an advisor to privately-held and family businesses and the other half in CFO/COO roles, Martha Sullivan is a partner and the succession planning practice leader in the business transition strategies group at Honkamp, Krueger & Co., P.C. She and her team have extensive experience assisting business owners achieve their personal, business, and transition goals. “Don’t think of the 'exit' from your business like it’s a four-letter word. Make it your next adventure!”

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