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Identify value and mitigate risks before building equity

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To increase value in your company, start by identifying what constitutes value in your business – and then correlate it to a comprehensive personal, financial and business assessment.

This will give a baseline value for your business, which allows you to compare it against others in your industry.

The next step in integrating exit strategy into the daily operations of your business is to focus on protecting value.

Indeed, this is the first step in beginning to build value after identifying the worth of your business.

Protecting value is a process of mitigating risk. And if you do nothing else, mitigating risk alone can help improve your business value because valuations are based in part on the real and perceived risks from a buyer’s perspective.

There are three major types of risks:

<Personal: Death, disability, divorce, health, accidents, family tragedies.

<Financial: Market, diversification, debt, lawsuits, lost earning power, chronic illness.

<Business: Loss of key person, loss of customers, partner disagreement, owner dependence.

With that, there are several questions to consider:

<Does your business have an operating agreement?

<Do you have a lease with a landlord or with yourself if you own the building?

<Do you understand the financial impact your death would have on your business and on your family?

<Do you have a buy-sell agreement?

<Are estate documents, including living will and health care directives, up-to-date?

<Do you have an emergency transition plan in case you never again work?


Protecting business value means placing your attention on the things you can control.

In fact, there are major things you can control that mitigate risk and, in return, could preserve or increase value.

The first document to consider, beyond normal estate-planning documents, that significantly affects your business at a critical time is an emergency transition plan.

It’s not a legal document but a list of instructions that gives family and advisers direction about managing your business and whether to keep or sell the business.


If you were to take a month-long vacation today, would the business be the same when you return?

This is a great measure of how dependent the business is on you. Consider new ways to manage your business so it is less dependent on you.

Seek advice on agreements and benefit plans that will incentivize key employees for long-term retention.

In addition, train key people now to replace what you do so the business is not dependent on your skills. Take time off to test whether it is working.


In a time of crisis, it makes sense to have capital in reserve.

Consider your need for operating capital when the economy or your industry goes through a recession. Make sure you have cash reserves to see you through bad times. Consider reviewing your need for capital in the event of your death or disability.

There are risk-management tools such as life insurance and disability insurance that help mitigate the loss of revenue because of the unexpected death or disability of a key employee or owner.

Too often, this risk is self-funded, which certainly increases the risk of lost value to those left behind.


After you have identified and worked to protect value, you’re ready to build value.

And when you build value, you take a longer-term view with priorities attached to more strategic actions.

These actions seek to increase your intangible capital as opposed to de-risking actions, which are less strategic in nature.

Based in South Whitehall Township, Jan Graybill is a Certified Exit Planning Advisor and managing partner of Legacy Planning Partners, a company he founded in 1999. For 37 years, he has made business owner transition planning the focus of his client practice. He can be reached at jgraybill@legacy-online.com.

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