Many entrepreneurs and small business owners begin their careers with a little too much enthusiasm and too little pragmatism. They have on proverbial rose-colored lenses Entrepreneur dream of being their own boss and all the benefits that go with it. They fail to recognize that owning your business is hard work and long hours. A new business owner has to overcome insecurity and self-doubt. Friends and family members will question the entrepreneur’s judgment when they leave a stable and secure job. Do not get me wrong; an entrepreneur needs optimism and enthusiasm to start. If they do not have them in sufficient quantity, they will not make it very far. The up-and-coming owner needs to look at the positives and negatives and boldly plunge into the world of entrepreneurship.
The problem is when it is unbalanced. The sad but true fact is that many fails. They aren’t able to make it past the first five years. Businesses fail for all sorts of reasons. But, unfortunately, it is often the things they do not see coming that derail you on your path to success.
However, taking a moment to plan for the future can go a long way towards success. Next, the entrepreneur needs to sit down with a consultant, attorney, or accountant and discuss things that can keep them from success.
I am not talking about a business plan. Those tend to be more optimistic than pragmatic. I am talking about more of a business dissolution plan.
An entrepreneur needs to have a candid conversation about the things that can cause them to fail. The five main things are: 1) death, 2) divorce, 3) disability, 4) dissolution, and 5) disagreement.
What happens if you die? Is your business going to continue without you? How about your partners? What about your significant other and children?
What happens if you and your significant other get a divorce? How will the assets of the business be distributed? Will the non-working spouse sign an agreement giving the working spouse the assets?
What happens if you or one of your partners become disabled? How will the business continue? Will the disabled partner be bought out of the business?
If things do not work out, how will they dissolve? If you have partners, who is responsible for what? How will the debt be distributed?
What happens if you disagree with your partners? Who is the final decision maker? For example, if only two of you and the business are split equally, who will have the final say if you disagree?
Final Thoughts on Business Dissolution Plans
It is not going to be pretty. The conversation will be difficult. You will learn things about yourself and your partner(s) that you may struggle with, but it is more important to have the conversation. It would help if you discussed how you would handle the five D’s or set yourself up for failure. A business dissolution plan is equally if not more important than a business plan. The exciting part is that as you plan, it will help you define your goals and develop a strong foundation that will yield income for years to come. You will sleep better at night knowing that you have already made the decision.
For more tools and resources on small businesses, see the SBE Council.