What would happen if you had to sell your business this week due to illness?
Recently a man contacted me because his doctors told him that due to his illness, he had to stop working immediately. The problem was that he owned a business.
How, he asked, could he comply with his doctors' orders and stop everything? There were staff, customers, and orders to think of.
He had bills to pay, and on top of it all, everything in the business revolved around him. My heart went out to him and his family in their challenge, because there had been times in my business career where I might have been in the same situation.
If he worked for government or industry this fellow would be fine, he could take a leave from his job, get compensation from an insurance program and rest up and get healthy. As a business owner, things are different and unfortunately often tragic.
Most business owners who cannot work in their business stand to lose everything. There are some estimates that most business owners have 50-90 per cent of their total assets tied up in the business.
This means if they get sick or are forced to retire without getting their money out of the business, they could be ready for the poor house.
Unfortunately, most business owners are not prepared for a quick sale or transition of their business. A study published by ROCG in October 2008 found that only nine per cent of business owners had a written plan to exit the business and another 33 per cent said they had plans but they were not formalized or written.
So, what would happen if you had to sell your business this week due to an illness? Chances are that you would only get pennies on the dollar for what you own. The truth is that only 25-30 per cent of businesses are ever sold.
The majority close down with the owner selling off the assets, inventory and property - if they are fortunate enough to even own the property. You have probably seen with your own eyes, closing out and liquidation sales where stock and inventory are sold for a fraction of what the owner paid for them.
The intention of this article is not to have you concluding that all business owners are doomed to failure and a bleak future if they are hit by illness. However, we need to be prepared and to have previously considered our options. if our lives are to change directions due to unforeseen circumstances.
As business owners we must clarify our options. Yes, we could close the doors and walk away if we have enough money in the bank, but my observation after working with business owners for years is that most don't have enough money to survive for 20 or 30 years without their income.
Other options would be to have a liquidation sale, sell the business to staff, family members, competition, or another interested business party. This would provide some income for us and our family provided the business is worth anything. But those options all take time.
Fire me off an email if you want to know the five things that buyers are looking for in a business.
Having a plan written up for our family and employees to follow if something happened which left us unable to manage our business, is a great first step. Sharing that plan would be a necessary second step. The challenge of most of us who run a business on a daily basis is that we procrastinate about planning for worst case scenarios which would ensure that we can benefit from the value we have created. Unfortunately, before we know it, our time in the business is up and we have failed to realize our dreams or to prepare for the future.
Regrettably, the fellow who reached out to me hadn't been able to create a valuable business and was going to be forced to sell the business for its assets at a fraction of the amount of his investment. I hope this doesn't happen to you.
Start preparing early and have a plan of action in the event that a disaster could possibly strike you.
Dave Fuller, MBA, is an award-winning business coach and the author of the book Profit Yourself Healthy. Is your time running out? Email firstname.lastname@example.org before its too late.