How to Protect the Value of Your Business With The Options Available To You
Diversification is one of the most basic concepts when it comes to investing. It helps protect your assets from market volatility and any substantial drops in your portfolio from poor performance of an investment choice. But what do you do if you simply can’t diversify and the future worth of your largest, most valuable asset is at stake?
How To Protect A Business Owner’s Largest Asset
If you’re like the average business owner, more than half of your entire net worth is tied up in the value of your business. This means diversification isn’t so simple. With an investment portfolio, you might be able to call up your advisor and quickly trade out of certain stocks, but as a business owner, you typically can’t sell a portion of your company within a day’s notice. Selling all or a portion of your business requires a significant amount of time and planning.
Read Also: Do You Have A ‘Get-Out-Of-Business’ Plan?
So, what options should you explore that can protect the value of your largest asset and mitigate the risk of it taking an unwanted plunge? Being proactive in several key areas will put you (and your business) in a more secure position for long-term stability.
These recommended steps can help protect your business’s value:
- Buy-Sell Agreement – A buy-sell agreement is a business’s “last will and testament.” It serves to direct what will happen if a shareholder passes away, becomes incapacitated, retires or is fired from the business. Think of the buy-sell agreement as the safety net for all of the “what ifs” that can occur in your business. Remember, a buy-sell agreement that was written 10 or 15 years ago and never updated could potentially have an outdated calculation of value formula that negatively impacts the current business owners if any of the above scenarios takes place.
- Contracts For Key Employees – Your business’s value would take a hit if key employees left and stole your customers or other employees. That’s why having contracts in place for key employees can prevent this from happening and protect your value.
- Succession Planning – You’ve likely spent a lot of time considering what the next phase of your life will look like, but have you planned out the details for how to get there? An unexpected exit from your business could have a negative impact on its value. That’s why beginning the succession planning process early can ensure that you leave your business on your terms, while protecting the value and preserving your legacy.
- Intellectual Property Protection – The value of your business could be negatively impacted if you have an unprotected idea that is stolen.
- Insurance Coverage – Without the appropriate insurance coverage, a major lawsuit, accident or natural disaster could devastate your business’s value.
Having a solid exit planning strategy isn’t easy to do on your own, and since protecting your business’s value is vital, it’s smart to consult professionals for assistance. Working with an experienced and credentialed business valuation expert will help you protect your business’s value and your net worth. Contact our business valuation team today to discover how they can assist you in developing a plan to protect your value.
By Paul Weisinger, CPA/ABV, CVA, CEPA (Cleveland office)