A Failure to Plan is a Plan to Fail
By Doug Alexander
SAALFELD GRIGGS PC
Often life’s most important lessons are not those that are learned in meetings or classes, but those that are learned from the school of hard knocks. These lessons are more personal, more immediate, and often more memorable. Planning takes time, but it is usually worth the effort. Here are some examples, both good and bad, of how planning (or the lack thereof) has impacted a few of our clients.
1. AN OUNCE OF PREVENTION VS. A POUND OF CURE:
As business owners, we frequently want to move forward quickly with our business plans, sometimes at the expense of crossing the t’s and dotting the i’s. This can be like playing Russian Roulette. For example, a client negotiated a complex licensing agreement and we were asked to prepare the contract. This took time and added cost, but the agreement was ultimately executed by both parties. Later, when a dispute arose, details that were negotiated and properly documented in the contract became the key to enabling our client to obtain a favorable outcome. Contrast that with the case of a client who negotiated a deal and then chose to write it up himself, without the benefit of legal counsel. Later, when a disagreement arose and we were consulted, we had to advise the client that (a) their case was not good because important components of the agreement were never adequately documented and (b) that the cost to defend the case would be prohibitive and risky because there was no right under the agreement to recover attorney fees as a prevailing party. The client was forced to settle on unfavorable terms at a much higher cost than had he properly documented the transaction at its inception.
The Lesson: An ounce of prevention is always more efficient and less costly than the later pound of cure.
2. GOOD PLANS MAKE FOR FEWER WORRIES:
Having an effective business plan is critical. For example, a successful business owner worked with us over a period of years on developing and implementing a detailed transition plan for his business. It involved extensive estate planning work, gifting strategies, formation of new companies, shifting responsibilities within the company, and letting go of control over a period of time. This work was done with the involvement and approval of all family members. Regular meetings were held with the members of the family, other key members of their management team, and professional advisors. The plan was flexible, and while the group remained focused on the goal, they were also willing to adapt to changes resulting from family needs and shifts in their industry. Suddenly and without warning, the founder of the business began experiencing heart problems. On very short notice, he was admitted to the hospital and underwent open heart surgery. Fortunately, the founder’s skills and knowledge had been transferred to his successors. Family members were able to focus on the health of the founder rather than worry about whether adequate plans were in place in the event of his death. The founder survived the surgery, recovered and returned to work, and the business did not skip a beat. Incidentally, if the founder had died he did have an effective estate plan in place which eliminated an additional source of concern for the family.
The Lesson: Preparation and planning enables you to effectively manage the business during times of crisis.
3. CHANGE HAPPENS:
Two business owners came to our office for assistance in the formation of a new business. They had been life-long friends and wanted to form a partnership for their new venture. Any discussion regarding the possibility of a future breakup was glossed over. Nevertheless, their able CPA insisted that he would not represent them unless they followed our counsel and negotiated a suitable Buy-Sell agreement. They felt that the exercise was a waste of both time and money. Surprisingly, in less than 90 days, the friendship of over 50 years was destroyed and the same business owners came in again to discuss how they would separate. Now the Buy-Sell agreement that they thought was pointless became the solution to their dispute because the mechanisms and terms for their separation had already been agreed to.
The Lesson: No matter how certain you are about the future, prepare for the unexpected and plan for change. More often than not it will occur and you are best to have prepared in advance.
4. DON’T ASSUME:
A client, after developing a very successful business, assumed that his only child would take over the business on his retirement. No discussion ever took place and no real planning for retirement was ever done. When the day came, the client was quite surprised to learn that his child had decided that he did not want the responsibility of running the business. This resulted in a complete change of plans on short notice with a less favorable outcome for the business owner. The business was eventually sold because there was no natural successor.
The Lesson: Don’t assume that others will want what you want. Open lines of communication are essential.
Remember, a failure to plan is often a plan to fail. If you would like assistance with your business planning, please give Bob or Doug a call.