Strictly Business

Wednesday, Jan 08 2014 04:00 PM

RUSS ALLRED: Combating business death by the numbers

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    Russ Allred, business consultant and author at Sunbelt Business Brokers & Advisors.

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BY RUSS ALLRED Contributing columnist

Your days are numbered and the numbers don't lie, especially when your number is up. The post-Christmas pressure on business owners is often destructive. After the rush and excitement, neglected relationships return to the forefront. Gift-getting leaves many wanting more friendship, more intimacy. The winter also takes a toll on health and mortality rates often rise. January is a busy time for divorce lawyers and undertakers, but both divorce and death are bad for business.

The accumulation of wealth used to occur over generations. A family would amass land for a farm and the children would augment the real estate with their efforts. Couples that understood economics believed that the land held their families together. The dissolution of the couple meant splitting the family wealth.

Where once the couple was millionaires, now their wealth is split and their expenses doubled. A family business will often employ the less able because they are family. Post divorce there are more children with single parents. Statistically speaking they are more likely to be unsupervised, more likely to be delinquent, and more likely to be a drain on society, rather than a boon.

It is fairly easy to sell a home and split the proceeds. It's not so easy to sell a business, especially after divorce. Legally, the business is owned by both parties and both must agree on the disposition of assets. The one employed by the business needs the continuing income, while the other may want to inflict some pain. The owner of a successful hardware store, once locked his business doors, never to return, rather than pay another dime to his estranged wife.

While it is best to invest in your family relationships, the best practice is to protect the business from the divorce or death of the owners in the following ways:

1. Buy/sell agreements should be in place.

2. Insurance is often helpful to pay the cash demands of estate tax.

3. As children marry, it may be necessary for the new spouses to relinquish any claim on the business by contract, in the form of pre-nuptial agreements.

4. A management continuation plan to replace key people should be in place and communicated to the surviving spouse in advance of the other's demise.

While this accounting is anti-romantic, it is necessary in this world where divorce and death are statistically inevitable.

-- Russ Allred, MBA, is a business consultant and author with Sunbelt Business Brokers & Advisors. These are his opinions, not necessarily those of The Californian.

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