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Business Planning: Phase II – Defend – Internal Threats

Business Planning: Phase II – Defend – Internal Threats

Author: Brandon Jordan, CFP®, CHFC®, CEPA®, CVGA®, CLU®, MSA, EA | CEO of Impact Advisors Group

“Offense sells tickets, but defense wins championships!” ~ Bear Bryant

If we desire to improve the odds that our business wins long term and achieves a meaningful value, it’s essential that we build up our defense against threats, both internal and external. This upcoming series will focus on the internal threats, what they are, what IMPACT they have, and how to mitigate exposure to each of them. The top internal threats are as follows: 1. Owner Dependence 2. Key Employee Dependence 3. Unplanned Events (a) Death (b) Disability (c) Divorce (d) Distress (e) Disagreement 4. Supplier / Vendor Concentration 5. Customer Concentration

Owner dependence is a double-edged sword. A business’ initial success is quite often the result of the owners’ effort, resilience, and resourcefulness. Without them, there’d be no business. Because of this, the owner is often one of the business’ most valuable assets. 
 
How then can a valuable asset also be seen as a threat/problem? Think of it this way. Would you pay top dollar for a car knowing that you have to incur the cost to replace the engine? Probably not. Why then should we expect a buyer pay top dollar for a business when they’ll have to incur the cost and challenge of replacing the most valuable asset (a.k.a. the economic engine)? They shouldn’t and they won’t! A business that cannot survive/thrive without its owner is worth less than a business that can. As such, an owner dependent business should expect to receive a discounted price/valuation rather than a premium.  
 
A tried-and-true way to maximize the value of your business is to make the business less dependent on you! How can we make the business less dependent on its owner? A few suggestions:

1.  Build an independent board of advisors.

2. Build a strong management team AND give them authority to make decisions, the responsibility to implement those decisions, and the accountability (rewards and/or consequences) for the results of those decisions.

3. Transition key relationships (e.g. banking, vendor, supplier, customer, etc.) to other members of the management team.

IAG’s team of advisors is ready to help your business become the wealth creation tool it’s meant to be!

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