What Is Your Exit Strategy?
You’ve made it through your first few years, your business seems to be booming, new clients are coming in and you have a good sense for what works and what doesn’t.
It’s often quoted that 20% of small businesses fail in their first year. While that’s terrible for them, that still means 80% succeed, right? But businesses aren’t built for one year, and a whopping 70% of small businesses fail in their 10th year, if not before.
And not just small businesses fail, either. Seeming goliath companies like the iconic Blockbuster Video, Toys R Us, Kodak, and Polaroid, all reached a point in which they were failing to innovate and adapt, resulting in bankruptcy, closure, or buy out.
Be determined. Make success the only path. So, what causes failure?
What Causes a Business to Fail?
CB Insights, a tech market intelligence platform, put together the results of 101 startup failures and broke down the reasons, according to their owners, for their demise. Here are the top ten cited results:
- 42% specified a lack of market for their products/services
- 29% ran out of funds
- 23% had problems with their team
- 19% claimed they were outcompeted
- 18% faced pricing issues
- 17% failed to have a user-friendly product
- 17% did not follow a business model
- 14% made poor marketing choices
- 14% admitted to ignoring customers
- 13% believe their product rollout was poorly timed
Additionally, other owners found that they lost focus, passion for their business, or simply suffered burnout.
Surveys show that while the national average is 33.8 hours of work each week, 33% of small business owners are logging more than 50 hours per week, with 25% logging more than 60 hours. And at weekends? 70% of those surveyed note they work at least one weekend regularly.
Devoting so much time to your business is all the more reason to protect your interests. Inc.com cites Rhonda F. Waters, president of Mutare Group, as stating that “the small-business owners who are happiest begin with an end in mind.”
What is your end goal? How long do you plan to stay in the game? Are you prepared to adapt to the changing landscape in your sector? Do you have an exit strategy should you need one? Have you prepared yourself–and your business–for life’s surprises?
While none of the above-stated issues are completely unavoidable, and there is a lot you can do as a business owner and entrepreneur to learn from other owners’ mistakes, there are additional ways you can be more effective in starting and running a business.
According to Steve Hogan of TechRx, businesses without co-founders are those that are most likely to fail, so one step you can take is to find a trustworthy co-owner to help you run your company.
Entrepreneur.com notes some of the most critical steps to take in forming a workable partnership, such as being able to recognize your strengths and weaknesses as well as your partner’s, being honest about where you see the company and yourself down the road, maintaining open, respectful communication, and putting things in writing.
However, starting a business with one or more partners offers its own set of challenges, even if you succeed. For instance, what happens if one of you leaves the company? How do you protect your interests in a situation outside of your control, such as untimely death or disability?
Smart Partners Plan
If you or a partner leaves your company, it’s smart to have a plan in place. Buy-sell agreements, also known as buy-out agreements, allow you to manage what could otherwise be unmanageable in the loss of a business partner.
Having such an agreement safeguards your situation from all angles, such as ensuring that only those you and your partner have agreed upon could take control of business interests, that each of your shares is fairly evaluated, and that the business as a whole can maintain its trajectory.
While many believe that a buy-out agreement only covers you if your partner passes or retires, they can also cover several other tricky situations, such as divorce, personal bankruptcy, losing your business licensure, and even termination for cause (though hopefully, if you follow the above tips for healthy partnerships, this would never be a problem).
While there are many ways to work out a buy-sell agreement, a whole life insurance buy-sell agreement, in particular, provides a solid exit strategy and substantial protection. Here’s how it works:
- A whole life insurance policy is purchased for each business owner. Whole life insurance is a form of permanent life insurance, so the policy will cover each owner for life, with no need to worry about term limits.
- Premiums are paid on each policy, and each policy will also build cash value as a savings portion of the policy. This cash value offers a “living benefit” to the policyholder, serving as equity.
- In the case of an owner’s death, the proceeds from the policy will be used by the living owner to purchase the deceased’s portion of the company from their estate.
- In the case of an owner retiring, becoming ill, or leaving due to a disability, their policy is reassigned to the remaining owner(s).
Take the Next Step
Is it time for you to take the next step with your business? Be prepared for the future and the myriad challenges that will come your way. In establishing a business buy-sell agreement, you are protecting the interests of the partners, their families, and the business’s future. Whole life insurance offers monetary flexibility. A whole life policy is a proven method of chose for funding an agreement.
Recognize that choosing a whole life insurance policy is an investment with significant unique qualities. A qualified independent insurance agent will help you analyze insurance carriers, guide you through the purchasing process, and assist in securing a policy that works well with your budget. Get started on tomorrow, by making a call today.
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