Your business exit profitability can be negatively impacted by several unplanned situations that cause serious succession problems.

Business succession problems are the result of one or more of the five weaknesses I identified previously. Reason #1 was exit strategy weaknesses, Reason # 2 was structural faults. Reason # 3, situational errors, is the focus of this post.

Six situational errors have the potential to impact the success of your business succession, and therefore your business exit cash flow and profit.

The 6 situational errors that cause business succession problems:

1. Failing to recognize that illness can force a business to close. Most of us accept that one day we will die; however, few of us contemplate the possibility that we could become injured or ill enough to prevent us from working.
   As a business owner you are making a serious error of judgment if you overlook this possibility, because serious or prolonged illness could affect the success of your business, which in turn would negatively impact your business valuation and your longer term financial security.
2. Verbal agreements can lead to business failure When people make verbal agreements among the parties involved in a business, it’s usually because they share a relationship of trust. Verbal agreements seem quite normal within an extended family, with friends, or with partners, because most of us believe that the strength of the relationship will ensure the agreement will be honoured in the manner intended.
   The biggest problem with verbal agreements is that circumstances can change, people’s recollections become clouded over time, and misunderstandings can result, causing both relationship and business breakdown, with dire emotional and financial consequences.
3. Poorly communicated succession plans cause dispute and business breakdown. A common error of judgment by business owners is that they attempt to shoulder the decision-making process of succession all alone. Dividing a business in a family situation can be one of the hardest decisions of all, particularly if the main asset you hold is your business and you have one or more competing children hoping to eventually take control.
   As the business owner, it is more than likely your right to ultimately distribute and hand over the business in a way that you feel is most appropriate.
   However, if an amicable outcome in terms of both business continuity and retained relationships is important to you, you would be wise to communicate your intentions, to gain feedback and acceptance, from the stakeholders at the planning stage. Failing to communicate with all the people involved could be a recipe for disaster, resulting in financial disappointment and relationship breakdown for all the interested parties.
4. Infighting and disputes devalue a thriving business. When you first make the decision to join forces with others in a business, your attention is focused on all the positive attributes of the union.
   The last thing on your mind would be the possibility of an acrimonious separation that could result in you losing part or all of the capital you contributed initially, as well as being denied the value that you brought to the business from your efforts and contributions.
   Sadly, some business relationships do turn sour, and the worst time to attempt to negotiate fair exit terms is during a dispute, when emotions are running high and logic has left the building.
   In my latest book, “Your Business Succession: How To Exit Your Business For Maximum Cash Flow And Profit” you will discover the situational errors made by business partners Andy, Phyllis and Johanna, in a professional services firm that lost value due to their infighting and disputes, resulting in one partner being forced out without her rightful financial entitlements.
5. Situations that can force you to exit your business prematurely. You’ve already seen how disputes can impose upon your business value and continuity, and there are other circumstances that can be beyond your control, negatively impacting your ability to exit your business with the cash flow and profit you deserve. These situations include:
   •     debilitating illness
   •    sudden death
   •    bankruptcy or financial stress
   •    family breakdown and divorce
   Any of these situations may impact your ability to obtain a fair price for your business share, and will of course adversely affect your financial security. These situations can also leave business co-owners in a difficult financial position, as revealed in Case Study #12 in “Your Business Succession” book.
6. Temporary loss of capacity to function can lead to your business downfall. In small to medium sized businesses, often the owner or owners will make most of the major decisions, and sign off all the business related cheques and payments. If a situation suddenly occurs to prevent the owner’s capacity to authorize payments or to make vital decisions, the results can be ruinous to a business and its valuation, and therefore to the financial well being of the business owner.

Your business exit strategy should cover all the situations we have just identified.

In a future series I’ll share some case studies that will help you to understand the influence of each of these situational errors in detail, so you can plan how to overcome these problems before they can have any impact on your profitable business succession.

In the meantime please feel free to take advantage of these resources to make a start on your profitable business exit strategy now:

1. Take the Business Exit Quiz (5 minutes of your time) and find out where your exit strategy may be letting you down, and how to improve your chances of building a business for maximum profits and cash flow.
2. Read my latest book “Your Business Succession” to discover what you want to do to ensure you will not become a victim of one of the situations outlined earlier in this article.
3. Contact our Business Succession Strategy office to plan your business succession strategy, so we can eliminate the stress of making the right decisions for your best chance of maximizing your business valuation for a profitable exit.

To Your Profitable Business Exit,
Leigh Riley

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