One of the most basic individual investment principals is the concept of diversification. As an investor, diversification can protect you from a large drop in your portfolio due to the poor performance of any one investment.
If you own a business, the business value is most likely more than half of their entire net worth. You cannot simply call your investment advisor and quickly sell a part of your business to diversify. It is possible to sell a partial interest in a business, but this is not available to all business owners and requires significant amount of planning.
So, what can you do to protect your net worth from dropping from a large decrease in the value of your business?
Just because you cannot diversify does not mean that you cannot take steps to protect the value of your business and your overall net worth. There are areas where you can be proactive and can take steps that will protect the value of your business.
Here is a partial list and brief description of some actions that a business owner can take to protect their business value:
- A buy-sell agreement – A buy-sell agreement is the “last will and testament” for your business. It directs what will happen if a shareholder dies, becomes incapacitated, retires or is fired from the business.
- Contracts for key employees – The value of your business would be greatly diminished if a key employee left and stole customers and other employees.
- Succession planning – Your unexpected exit from the business could have a significant negative impact on its value. Make sure you start the process of selecting and training someone to replace you. For more information, read this post on small business succession planning.
- Compliance with government regulators – A serious violation could cost your business hundreds of thousands of dollars and perhaps your entire business.
- Intellectual property protection – An unprotected idea stolen that is not protected can cause serious damage to your business.
- Proper insurance coverage – A major lawsuit, accident, or natural disaster without proper insurance can diminish your value.
Contact our Ohio business planning professionals
Picking a business exit planning strategy and knowing how to get started on it can be difficult. Luckily, this isn’t a decision that you have to make alone. This is a small list of things you can do to protect value. Working with a business planning professional can help you implement more solutions to protect your business’s value and your net worth. If you need help protecting your business, contact Rea & Associates. Our Ohio business planning team will evaluate your situation and help you develop a unique plan to protect your business.