The 5 Ds of Business Exit: Why Every Owner Needs a Contingency Plan

After years of facilitating business transitions, I've observed a sobering pattern: roughly 70% of business sales aren't planned. They're forced by what we call the "5 Ds": death, disability, divorce, distress, and disagreement between partners.

These aren't pleasant topics to discuss over coffee with your CPA or attorney. But understanding them could mean the difference between preserving the value you've built and watching it evaporate when crisis strikes.

Death

The sudden loss of a key owner or operator can paralyze a business overnight. I've worked with families scrambling to sell businesses where the deceased owner held all the vendor relationships, client contacts, and operational knowledge in their head. The business value plummeted simply because no succession plan existed.

What helps: A current buy-sell agreement, key person insurance, and documented processes that don't depend on any single individual's presence.

Disability

A serious illness or injury can be just as disruptive as death, but with added complexity. The owner is still present but unable to work. I've seen businesses hemorrhage value for months while families hoped for recovery, only to eventually sell at a fraction of what the business was worth.

What helps: Disability insurance specifically structured for business owners, a management team capable of running operations independently, and a power of attorney arrangement that enables swift decision-making.

Divorce

When personal relationships dissolve, business partnerships often follow. I've mediated situations where divorcing spouses who were also business co-owners needed to liquidate their company quickly to split assets. The rushed timeline and emotional tension made it impossible to maximize value. Even when only one spouse owns the business, divorce often forces a sale to provide liquidity for the settlement.

What helps: A shareholder agreement that addresses divorce scenarios, regular business valuations to avoid disputes, and maintaining clear separation between personal and business finances.

Distress

Financial pressure can come from anywhere. A major customer leaves, industry disruption hits, or economic conditions shift. I've watched owners who waited too long to act, hoping things would turn around. By the time they called me, they were selling assets at auction rather than transferring a going concern.

What helps: Strong financial management with regular reviews, diverse customer concentration, adequate working capital reserves, and the wisdom to recognize when a strategic exit beats riding a business into the ground.

Disagreement Between Partners

Business partnerships are like marriages, and sometimes they fail. I've sat across from partners who could barely look at each other, let alone agree on the future direction of their company. These situations often result in one partner buying out the other at a premium just to end the conflict, or worse, both partners lose value in a forced liquidation.

What helps: A comprehensive partnership agreement that includes buy-sell provisions, dispute resolution mechanisms, clear decision-making authority, and regular partner meetings to address issues before they become insurmountable.

The Pattern I See Repeatedly

In nearly every forced exit situation I've handled, the owners had one thing in common: they knew they should plan for these scenarios but never got around to it. The business was doing well, everyone was healthy, and relationships were solid. Until they weren't.

The business owners who weather these storms successfully aren't lucky. They're prepared. They've had uncomfortable conversations with their partners, families, and advisors. They've put agreements in place when emotions were stable and everyone was thinking clearly.

Three Steps You Can Take This Month

First, review or create your buy-sell agreement. If you have partners, this document should spell out exactly what happens in each of the 5 D scenarios. If you're a sole owner, your succession plan serves the same purpose.

Second, ensure your insurance coverage matches your actual exposure. Key person life insurance and disability coverage aren't luxuries. They're business continuity tools that preserve value when crisis hits.

Third, document your operations. If you were suddenly unavailable tomorrow, could someone else run your business? The answer to that question directly impacts your business value. I can’t say this enough - YOU NEED TO HAVE SOPs (Standard Operating Procedures)

The Bottom Line

None of us like to think about death, disability, divorce, distress, or disagreement. But these events happen to business owners every single day. The difference between those who preserve their business value and those who don't usually comes down to one factor: they planned for the unthinkable before it became inevitable.

Your business represents years of hard work, financial investment, and personal sacrifice. Don't let a forced exit rob you of the value you've created. The best time to plan for the 5 Ds is when you don't need to.