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The 4 D's Every Business Owner Needs to Plan For

By Christy Bieber - Aug 14, 2018 at 6:46AM

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Planning for the Four D's helps to ensure your business will stand the test of time.

For most entrepreneurs, the goal of building their own company isn't just to achieve short-term success -- it's to build a business that will stand the test of time. 

While business owners are often successful at developing a long-range plan for profitability and growth, there are unfortunately some big issues many entrepreneurs forget to address: divorce, departure, disability, and death. 

You should plan for these issues -- commonly called the "Four D's" -- as early on as possible when building your business so things don't fall apart in the future. 

Business with closing down sign in window

Image source: Getty Images.

1. Divorce

Divorce is especially complicated when running a family business with a spouse. But issues could arise even when only one spouse is an entrepreneur, because state laws on property division often result in both spouses having an ownership stake in a company built during a marriage. 

Business owners who haven't yet married should protect their company by using a prenuptial agreement. If a business is started after marriage, a postnuptial agreement allows spouses to negotiate what will happen in the event of divorce so a business doesn't suffer. 

A written buy-sell agreement could also specify which spouse keeps the company in the event of a divorce -- and how the other spouse should be compensated for his or her ownership interest. 

2. Departure

If you're the sole owner of your business, you can negotiate a sale when you no longer want to operate it. This is easier if you've incorporated, so the company is a separate entity. Still, you may need a professional to help with valuation. But the process is easier when you decide on your own whether to accept or reject offers. 

When you co-own a private company with others, things become complicated. If one co-owner wants to leave, what happens? Should other owners get first dibs on buying his or her share? Can the departing owner sell to whomever he or she wants? How should the value of his or her ownership interest be determined?

All of these issues should be addressed well in advance of any owner's departure. A buy-sell agreement should detail how the company is valued and what restrictions are in place on who the company's sold to when one of the owners walks away. 

3. Disability

Disability creates multiple problems, including questions of how to support the disabled owner while keeping the company operating. 

A comprehensive benefits package, including disability coverage, protects business owners whose disability prevents them from working, while a key person disability insurance (also known as "key man" insurance) provides money to the company to help it stay afloat in these difficult circumstances. 

4. Death

A death of an owner is devastating to a business unless a succession plan is in place. 

If there are co-owners, a buy-sell agreement should specify the process after a death occurs. Business owners in privately held companies often want to buy the ownership interest of a deceased co-owner, rather than it being left to heirs or beneficiaries as part of an estate. This should be specified in your buy-sell agreement -- and life insurance with the company as the beneficiary may need to be purchased to provide funds to buy out the family of the deceased. 

Sole proprietors, on the other hand, need a detailed plan for who will take ownership and how the business will be transferred. Anyone with an interest in a business also should determine if their ownership would result in their estate owing estate tax, and plan accordingly. 

Don't forget to plan for the Four D's

Thinking about the Four D's is unpleasant, but it's essential to address these issues -- especially if a company has co-owners.

Talking with an attorney to draft a buy-sell agreement is advisable to address many of these issues. You can also find templates and sample agreements online to guide you if you're handling the process on your own.

Whatever approach you take, just be sure to put a plan in place so your business will continue to thrive even when you're no longer a part of it. 

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