For many business owners, business growth is the main area of focus. However, asset protection and retention are elements of business growth that don’t always get the same limelight as growth strategies. When it comes to planning for a successful future, incorporating strategies that position you to protect your assets and retain the things that make your business successful could be just as crucial as implementing growth strategies.
Let’s look at a few commonly overlooked asset protection strategies, and the consequences of incorporating them and ignoring them.
Handcuffing Key Employees
Key employees are those whose absence would have a tangible negative effect on company performance. Keeping these employees onboard and motivated is often crucial to business success.
However, business owners may struggle to identify these key employees, which makes it even harder to handcuff them to the business. For example, it’s one thing for a salesperson to have a hot six months. It’s entirely different to have a salesperson who consistently drives a bulk of the company’s business growth while also providing strategies for further growth.
When business owners are in the thick of it, these two salespeople could look exactly the same to them. An Advisor Team could help business owners identify which employee is truly the key employee and which is the one on the hot streak.
After identifying key employees, another common misstep is a misalignment between the key employee’s motivators and what the business owner offers that employee to try to handcuff them.
For example, you may identify a key employee that you want to handcuff. You may see that they are an ambitious employee and assume that they may eventually want to transfer their talents into ownership. But when you offer that key employee an ownership stake in the company, they balk and eventually leave the business.
A better approach to this situation would be to have an open and frank conversation with the key employee. This would include presenting how important they are to the company, followed by a conversation to better understand what motivates them the most.
In short, understanding what a key employee looks like, handcuffing them using strategies that resonate with them, and ensuring that your strategies keep the employee motivated while achieving your business goals could be a powerful asset protection strategy for your business.
Ensuring Business Continuity
One of the scariest phrases that a business owner can say to an advisor is, “That’ll never happen to me.” This is especially true if a business is reliant on the business owner’s presence for its success.
Of course, no business owner wants to think about an unexpected death, permanent incapacitation, or other negative event that would affect their ability to run their business. But the consequences of denying the possibility, no matter how slim, can be egregious.
Let’s assume that you make the final call on every big decision related to your company’s success. Even if you were made unavailable for just a month or two, what effect would that have on your business? Do you know who would have the capability to step in? Would your family have strategies to make up for any lost income?
Implementing a business continuity strategy long before you absolutely need it could be a prudent way to protect both short-term and long-term assets. This is especially true if you are still acting as the hub of your entire business.
If something were to ever happen to you that forced you to leave your business unexpectedly, a set of Business Continuity Instructions could help your company and the people who rely on it navigate the event more smoothly.
Common elements of Business Continuity Instructions include direction on who takes over the business if you can’t run it, what to do with the business to best achieve your financial security goals, and which steps your family can take to protect themselves financially in your absence.
Establishing Business Continuity Instructions long before you need them could help your business, employees, family, and advisors adjust more effectively if you were ever suddenly unable to run the business.
Diversifying Your Customer Base
How would your business fare if it lost one client that comprised 25% of your client base? For many small businesses, such a loss would, at best, represent all of their yearly profit. At worst, it could be a death knell.
A diverse customer base is often an essential element of asset protection for your business. When you have a diverse customer base, you may be able to insulate yourself against the pain of losing clients over time. It could help overcome the natural churn cycle because instead of relying on one or two whales to eat, you have a repository of smaller fish that keep food on the table.
In some cases, diversifying your customer base requires you to find key employees outside of your business. These key employees would have the expertise and know-how to penetrate new markets to help you diversify your customer base.
When your company is not reliant on just one or two big clients, it could help you maintain control over your business’ future success. This, in turn, could give you more avenues to pursue an eventual exit from your business on your terms. Because after all, potential buyers typically prefer businesses with client bases they don’t have to build themselves.
Committing to Asset Protection
Business growth strategies are an exciting part of building your business. But protecting your assets in conjunction with implementing growth strategies is an essential strategy for business owners.
It may not be as exciting as coming up with ideas for how to grow even more, but protecting your assets could give your business a stronger foundation to overcome ebbs in growth and continue on a path toward a successful business future. We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional.
About Altus Exit Strategies
David Jean is the Director of Altus Exit Strategies and a Principal at Albin, Randall & Bennett, where he is also the Practice Leader of the Succession Planning, Business Advisory, and Construction & Real Estate Services Teams. David works with business owners who want to improve their business’s value before they sell through the Seven-Step Exit Planning Preparation™ process. He has worked with companies from $5 million to $50 million in revenue across a range of industries.
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