The 3 D’s That Kill Businesses: Debt, Divorce, and Death

Hardly anyone creates a company while also imagining the worst possible thing that could happen to it. Instead we envision success, milestones, and creating revenue for both the business and for your family.

But unfortunately, it doesn’t always go that way. Businesses, even really successful ones, are susceptible to going under—and not from a lack of sales or profits—but from the three D’s: debt, divorce, and death.

Let’s dive into each of these topics and figure out what simple precautions (such as will preparation and prenuptial agreements) you can take to not only survive these situations but go on to thrive in your business and your community.

How Debt Can Damage a Business

When you start a business it’s reasonable to take on some debt to get things started right away, but when your debt is so large and looming that it’s affecting your everyday cash flow, preventing you from going after new opportunities, or worse, making you unable to pay employees, it might be a good idea to step back for a minute to take a hard look at your debts—both personal and business.

You may assume that your personal debt doesn’t have anything to do with your business, but it can potentially make your business vulnerable if the right protections aren’t set in place.

Although it might be difficult to imagine, if you’re truly in the hole, then filing bankruptcy for your business could be the best option for you while you try to get your head above water. Filing for bankruptcy will put an automatic stay, which means that your creditors aren’t allowed to collect from you (and you can catch up with some of those payments).

Click here to read more on limited company bankruptcy

If you are filing for personal bankruptcy, you must list your business as an asset—but this does not necessarily mean that you have to close your business during the proceedings. (If you own a business and are filing for personal bankruptcy, the legal ramifications will depend on various factors, so it’s best to contact a lawyer if you have any questions.)

Though many businesses choose to liquidate their business (therefore closing the business and dividing up the assets to creditors), others that have the possibility of moving on from their debt can file Chapter 11 or Chapter 13 bankruptcy, which will give them the opportunity to come up with a repayment plan, reorganize, and get back to work.

The best policy, however, is always to manage a healthy amount of debt—and to be extremely careful about borrowing money for your business.

How Divorce Can be Detrimental to a Business

We never want to imagine that the relationship we pledged commitment to forever would ever fall apart, but sometimes it does. It’s difficult enough to divide up personal assets when you’re going through a divorce, but what happens when you’ve built a business during the time that the two of you have been married?

Things can get tricky pretty quickly here. Here’s how to divorce proof your business:

Depending on where you live and how you set up the business, your future ex-spouse could potentially be entitled to as much as 50 percent of your business as well as a portion of any future business earnings that you may make.

The best way to prevent an awkward ex-spousal business partnership or your business from being sold to raise cash after the divorce is to establish ground rules before your relationship even gets rocky. Yes, I’m talking about a pre-nuptial agreement here.

If you’ve already tied the knot, a post-nuptial agreement is also a good option if you want to define your business as a separate property from your joint assets. You could also set up a buy-sell agreement that would give you the option of buying them out at a preset price.

How Death Can Be Detrimental to a Small Business

We get it—no one likes to think about what life is going to be like after we die, but when you’re a business owner, you need to think about what the fate of your business will be once you’re gone. It’s important to do this so that it can continue to be profitable for your family and your employees.

The easiest way to keep your business running efficiently after you’ve passed away is a little bit of estate planning. This is a good idea not only because it’ll leave your family and employees with less stress over a lack of direction, but also because you can avoid family members having to take a loss on an extraordinary amount of taxes.

The first thing to do planning your estate is to discuss it with your loved ones, and then prepare a will with a trusted legal service such as my recommendation, LegalZoom. Read my review and save 10% with the referral code BEST4B. Think about who, if anyone, you’d like to run your business, and how (should you choose to sell) the process will be done so you can save your family a lot of agony.

No one wants to think about all of the not-so-fun scenarios when running a business, but it’s imperative that you confront these tough topics head on so that you can ensure that you, your family, and your employees are well cared for in the future.