For most business owners, their company is their largest asset. It’s what they have invested their hard work, their creativity, their energy, their time, and their money into. While owners should and often do have other investments, their companies are essential depositories of value. Protecting business value is critical to them because they depend on pulling that value out to fund retirement or other projects in the future. That means taking proactive, protective measures about data, insurance, and liability.
In an earlier blog we discussed protecting business value with succession planning. The actions an owner takes to determine what will happen to his business in the future when he is no longer running it are vital for preserving value. That’s not the only way to protect a business, however. There are many other actions that owners can take to protect their businesses in the present that will limit liability and harm and allow them to grow, stabilize, and build value over time.
Protecting Business Value by Taking Proactive Measures
Data – There are several types of data that companies must keep safe if they want to preserve their value. The first is their intellectual property – any unique creation or invention that they have rights to that can be patented or copyrighted. This is especially true if the company depends on that intellectual property to be competitive in the marketplace.
The second type is data that the company uses to remain operational. The third is data provided by or about their customers. Here are some ways to keep data safe:
- Keep online only the sensitive information that the company needs to operate. Anything extraneous that is not useful is a lawsuit waiting to happen if there is a data breach.
- Encrypt the sensitive data you do have to keep it safe from hackers.
- Back up your data regularly.
- Invest in network security, including network access control and firewall protection.
Your company should have an IT professional directly involved in installing and maintaining your company’s information systems. Whether that involves bringing a full-time or part-time employee into your organization or paying a consultant firm to manage your network, you should have an expert in charge of monitoring and protecting your network and your data.
Insurance – There are many things that can go wrong in life, small and large threats and negative events. Without the appropriate insurance coverage, businesses can be pushed into bankruptcy if they experience one of them. In the past few months we’ve seen many small businesses devastated by looting or property damage. If their owners did not have the proper insurance beforehand, many will be forced to close because of losses they cannot afford to cover. Is your company protected from the damage a lawsuit, a wind storm, an accident, or a mob can do?
Liability – In an increasingly litigious society where more personal behavior is filmed every day, business owners have to be very careful what they say and do on and offline. They also have to make it clear to employees that their behavior will reflect on the company. If the public witnesses anyone affiliated with the company making libelous or slanderous statements, that can have legal repercussions. If they are caught making racist, sexist, homophobic or otherwise bigoted statements, that could have disastrous consequences for the company’s bottom line.
Hiring a competent lawyer or keeping one on retainer for advice and help can be a lifesaver if a complicated situation arises and no one knows how to navigate it. This would include advice about local legalities, product requirements, and tax law as well.
Another way to limit liability is to incorporate. Many businesses operate as sole proprietorships. This may be a flexible way to function as a company, but if the business is sued, the owner’s assets, including his home, can be vulnerable. No one wants to have a business disaster turn into a personal disaster as well. Some businesses incorporate to separate their finances from the owner’s and bypass this threat. The government has different requirements of a corporation, however, in terms of laws, reporting, and taxation, so this is not a solution for every business owner.
Another method of limiting business liability and protecting value is to create a trust and have the trust own the business. A business value protection trust can be created to protect assets from issues that arise both inside and outside of the company.
Succession planning – Finally, nothing protects business value better than regular examination of the company’s valuation, strengths, and weaknesses, and planning for the future. When a company is young, those plans might focus solely on growth. Any owner of a family business should begin preparing children and other members of the family to take on roles and responsibilities within the company long before he begins to think about retirement.
If you would like additional advice about any of the above areas of vulnerability for your business, that’s why Prometis Partners is here. We have helped many business owners assess their companies’ weaknesses and make changes that improve their value in the present, grow that value over time, and protect it for the future and for a change in company leadership. Call us today to talk about any issue or concern you may have about protecting business value.