The Five D’s: Death, Disability, Disaster, Divorce, Disagreement

By: Amy Wirtz

No, this is not a bad report card. The Five D’s are threats a company may face that could force the sale of a company or greatly diminish the value of a company. A Certified Exit Planning Advisor educates business owners on how to prepare for these risks. Business owners may not be able to predict when or if any of these events will occur during their term of ownership in the business, but with proper planning, the business can be prepared to deal with these unfortunate five D’s. The following five articles will address these five life-changing events and their effects on your family business.

Death
My grandfather, Irv, was brought into his father-in-law’s business after he returned from World War II and obtained his accounting degree. Irv had just married my nineteen-year-old grandmother, Ruth, who was finishing her college degree. When Irv was about to graduate and take the CPA exam, Frank, his father-in-law, asked Irv to come and work for the family business. Frank and his brothers owned and operated scrap yards throughout the area. Frank convinced Irv that he did not need to obtain a CPA license to run this company and that it would be a waste of his time and money. Irv accepted this offer and initially . . .

Irv worked for one of his wife’s uncles. That fizzled after three years due to conflicts between old habits of the uncle and the fresh education of my grandfather. He then went to work in a scrap yard with his father-in-law, Frank. Irv worked with Frank for less than two years when Frank dropped dead of a heart attack. There was no exit plan, no life insurance and no contingency plan for Irv or Frank’s brothers to follow. Irv had the support of Frank’s brothers because, but they were running different parts of the business. Irv stated that it was by the grace of God and pure luck that the business survived that first year let alone for decades and another generation.

This story illustrates why business owners MUST face their own mortality. We all know we will die, but rarely acknowledge the effect our death will have on our businesses and loved ones. Estate planners, accountants, business lawyers and employees constantly tell me that the owner will never address what will occur if he/she dies no matter how often they bring it up in conversations.

We all avoid the thought of death…it is counterproductive to a growing business plan. A business with no contingency plan, no life insurance, and little cross-training will die with the owner. So the real question is, do you want your business to die with you or do you want it to become a long-lasting legacy that will carry on you life’s work and/or a valuable asset that can be sold to sustain your heirs?

How many of you with estate documents have read them in the last year? Do you still have the will you wrote when your first child was born? Do you even know where to find these documents? Do you have life insurance policies? If yes, when was the last time they were reviewed with an industry expert? Do you even remember why you bought them?

When an owner dies, the business becomes immediately vulnerable to outside influences and infighting. With a well-designed contingency plan, the surviving owners, employees and heirs will have a well thought out map and plan to move the company forward with the help of trusted advisors. Organizations like Family and Business Success can help you measure your risks and design a contingency plan so your family and business can successfully continue on after the passing of the owner.