Do you have a plan in place to protect your assets in case of illness?

David Fuller: Is illness forcing you out of your business? Have a planWhat would happen if you had to sell your business this week due to illness?

A man recently contacted me because his doctors told him that due to an illness, he had to stop working immediately. The problem was that he owned a business. How, he asked, could he comply with his doctors’ orders and stop everything?

There were staff, customers and orders to think of. He had bills to pay. And, on top of it all, everything in the business revolved around him.

My heart went out to him and his family in their challenge, because there had been times in my business career where I might have been in the same situation.

If he worked for government or industry, this fellow would be fine. He could take a leave from his job, get compensation from an insurance program, rest up and get healthy.

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As a business owner, I know things are different and, unfortunately, often tragic.

Most business owners who can’t work in their business stand to lose everything. Some estimates say most business owners have 50 to 90 percent of their total assets tied up in the business. This means if they get sick or are forced to retire without getting their money out of the business, they could be headed for the poor house.

Unfortunately, most business owners aren’t prepared for a quick sale or transition of their business. A study published by business consultancy ROCG in October 2008 found that only nine percent of owners had a written plan to exit the business and another 33 percent said they had plans but they weren’t formalized or written.

So what would happen if you had to sell your business this week due to an illness?

Chances are you would get pennies on the dollar for what you own.

The truth is that only 25 to 30 percent of businesses are ever sold. The majority close, with the owner selling off the assets, inventory and property – if they’re fortunate enough to even own the property. You’ve probably seen closing-out and liquidation sales where stock and inventory are sold for a fraction of what the owner paid for them.

My intention is not to have you conclude that all business owners are doomed to failure and a bleak future if they’re hit by illness. But we need to be prepared and consider our options in the event our lives change directions due to unforeseen circumstances.

As business owners, we must clarify our options. Yes, we could close the doors and walk away if we have enough money in the bank. But after working with business owners for years, I observed that most don’t have enough money to survive for 20 or 30 years without their income.

Other options would be to have a liquidation sale or to sell the business to staff, family members, competition or another interested party. This would bring some income, provided the business is worth anything.

But those options take time.

Having a plan written up for family and employees to follow if something happens that leaves us unable to manage our business is a great first step. Sharing that plan is the necessary second step.

But most of us who are immersed in running a business procrastinate about planning for worst-case scenarios to ensure we can benefit from the value we’ve created. Unfortunately, before we know it, our time in the business is up, and we’ve failed to realize our dreams or prepare for the future.

Regrettably, the fellow who reached out to me hadn’t been able to create value in the business. He was going to have to sell the business for its assets at a fraction of the amount of his investment.

So start preparing early and have a plan of action in the event a similar disaster strikes you.

Dave Fuller is a Commercial and Business Realtor, award-winning business coach, and business author.

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