How to Protect Everything You’ve Built In Business — Before It’s Too Late

By Brad Connors

As entrepreneurs, we’re hardwired to chase opportunity. We thrive on vision, hustle, and the relentless pursuit of growth. But while we’re busy building our business, are we truly preparing for the risks that could threaten everything we’ve worked for? At the recent Ascend Mastermind event, I challenged founders to look beyond the upside and confront the uncomfortable: the 5 D’s that can derail a business.

The 5 D’s That Can Derail Your Business

• Divorce
• Disagreements
• Disability
• Distress
• Death

These aren’t just theoretical risks—they’re real-world events that have blindsided even the most successful entrepreneurs. It’s not fun to think about, but it’s necessary. Here’s how you can prepare and protect your legacy before it’s too late.

Understanding the 5 D’s

• Divorce: A divorce can have catastrophic consequences for business owners, especially if the business is considered a marital asset. Without proper planning, you could find yourself forced to liquidate or divide your company, undermining years of hard work.
• Disagreements: Partnerships often start with shared vision and enthusiasm, but over time, disagreements about strategy, roles, or finances can escalate. Without clear agreements in place, these disputes can lead to costly litigation or even dissolution of the business1.
• Disability: If you or a key partner becomes disabled, the business could lose vital leadership or expertise. This risk is often overlooked, but it’s just as disruptive as death.
• Distress: Economic downturns, personal crises, or sudden market shifts can put your business under distress. Without contingency plans, you may be forced to make hasty decisions that compromise your company’s future.
• Death: The sudden loss of a founder or key executive can leave a business rudderless. Without succession plans or financial buffers, companies often struggle to survive such a blow.

Essential Strategies to Protect Your Business

1. Fund and Update Your Buy-Sell Agreement

A buy-sell agreement is a legally binding contract that outlines what happens if an owner leaves the business due to one of the 5 D’s. It covers valuation, funding, and the process for transferring ownership.

• Why it matters: Without a current buy-sell agreement, disputes over ownership can paralyze your company during a crisis.
• How to do it: Work with legal and financial advisors to ensure your agreement reflects your current business value, ownership structure, and succession plans. Regularly review and update it as circumstances change.

2. Carry Proper Key Person Insurance

Key person insurance is a life (and often disability) insurance policy that pays out to the business if a critical employee or owner dies or becomes disabled.

• Why it matters: The loss of a key person can cripple operations and revenue. Insurance provides a financial cushion to hire a replacement, pay debts, or buy out ownership stakes.
• How to do it: Identify who is truly irreplaceable—often founders, top salespeople, or technical leads. Calculate coverage based on their contribution to profits and the cost of finding a replacement. Review policies regularly as your business grows.

3. Maintain an Umbrella Policy That Matches Your Net Worth

Standard liability insurance may not be enough if your net worth exceeds your coverage. An umbrella policy provides additional liability protection against lawsuits, accidents, or claims that could otherwise wipe out your assets.

• Why it matters: If you’re worth $5 million but only have $2 million in coverage, a single lawsuit could devastate your finances.
• How to do it: Assess your total net worth and risks. Work with an insurance advisor to ensure your umbrella policy is sufficient and integrated with your other coverages.

4. Review Your C-Corp Retained Earnings and Salary Structure

For C corporations, retained earnings are profits kept in the business after paying dividends and taxes. The IRS allows a certain threshold (typically $250,000) before extra taxes kick in.

• Why it matters: Excess retained earnings can trigger IRS penalties unless you can justify the business need. An inefficient salary structure can also expose you to unnecessary taxes or reduce your ability to reinvest in growth.
• How to do it: Work with your CPA to review retained earnings, document business reasons for keeping funds, and optimize your salary and dividend mix. Ensure all decisions are board-approved and well-documented to avoid IRS scrutiny.

5. Start a Donor-Advised Fund if Charitable Giving Is a Priority

A donor-advised fund (DAF) is a flexible, tax-efficient way to manage charitable giving. You contribute assets, receive an immediate tax deduction, and recommend grants to charities over time.

• Why it matters: DAFs allow you to make a significant charitable impact, reduce estate taxes, and maintain flexibility in your giving strategy.
• How to do it: Open a DAF with a reputable provider, contribute appreciated assets for maximum tax benefit, and work with advisors to align your giving with your values and estate plan.

Additional Asset Protection Strategies

Legal Structure

Choosing the right business entity (LLC, corporation, partnership) is fundamental. It impacts liability, taxes, and how disputes are resolved. Regularly review your structure as your business evolves.

Intellectual Property

Protect your brand, inventions, and trade secrets with patents, trademarks, copyrights, and NDAs. Intellectual property can be a business’s most valuable asset and needs robust protection.

Trusts and Strategic Titling

Consider holding business assets in trusts or separate entities to shield them from creditors and simplify succession. Proper titling of real estate, IP, and other valuables can reduce risk and streamline transfers upon death or sale.

Cybersecurity

In today’s digital world, a data breach can be as devastating as a physical disaster. Implement strong cybersecurity policies, train employees, and maintain cyber insurance to mitigate these risks.

The Importance of Early and Ongoing Planning

Asset protection isn’t a one-time task—it’s an ongoing process. As your business grows, so do your risks. Regularly review your agreements, insurance, and financial structures. Consult with legal, tax, and financial professionals to adapt your strategies to new challenges and opportunities.

Early planning has helped many clients avoid significant financial and legal repercussions. As your business evolves, so should your protection strategies.

Building Wealth Is One Thing. Protecting It Is Another.

Entrepreneurs are natural builders. But true success isn’t just about what you create—it’s about what you keep. The 5 D’s can strike without warning. If you’re unsure whether your business and family are fully protected, now is the time to act. Don’t wait until a crisis forces your hand.

Final Thoughts: Take these steps today

• Review and update your buy-sell agreement
• Ensure you have adequate key person and umbrella insurance
• Optimize your C-corp’s retained earnings and salary structure
• Consider a donor-advised fund for charitable giving
• Consult professionals for a comprehensive risk review

Your legacy deserves more than hope—it deserves a plan. Protect everything you’ve built before it’s too late. If you’re ready to safeguard your business and family, let’s start the conversation now.