Author: Corvata Advisor

Snapshot: Stability Without Urgency

From the outside, the business appeared to be in a strong position. Four owners shared control, all were actively involved in day-to-day operations, and the company was experiencing sustained growth. Revenue was increasing, the team was expanding, and there was a general sense that the business had reached a stable and promising phase. Exit planning existed as an idea more than a discipline, something acknowledged in passing but consistently pushed aside in favor of more immediate priorities. There was no defined timeline and no sense that decisions needed to be made anytime soon.

That sense of time proved to be an illusion.

The Event No One Planned For

One of the four owners died suddenly from a massive heart attack in his early fifties. There was no warning and no opportunity to prepare the business or the ownership group for what came next. The loss was deeply personal, but the operational consequences were immediate and far-reaching.

Ownership Transfers by Law, Not Intent

At the time of his death, there was no buy-sell agreement in place. The owners had never formalized what would happen if one of them passed away, became disabled, or needed to exit unexpectedly. There was also no key person life insurance to provide liquidity or options. As a result, ownership transferred according to probate law rather than business intent.

The deceased owner’s shares in the S corporation passed to his spouse. From a legal standpoint, this was routine and unremarkable. From the perspective of the remaining owners, however, it fundamentally altered the ownership structure overnight. Someone they had never chosen as a partner now held voting rights and an economic stake in the company.

A New Owner Without Shared Context

The spouse had no prior involvement in the business and no familiarity with its operations, culture, or technical work. Still, ownership carries authority. The spouse began showing up at the office and sought to participate in decision-making, acting from the understandable belief that inherited ownership should come with involvement and visibility.

For the three remaining owners, the situation quickly became destabilizing. Conversations that had once been informal and candid became guarded. Sensitive topics were discussed more carefully, if at all. Longstanding trust within the ownership group began to erode as the reality set in that the business was now governed by rules and relationships that had never been agreed upon.

As tensions escalated, the spouse attempted to exert decision-making authority tied to the inherited shares. The remaining owners resisted, and the relationship shifted from uncomfortable to openly adversarial. At that point, legal counsel was engaged, and the owners began exploring options to remove the new shareholder and regain control.

What they discovered was a difficult truth that many business owners don’t fully appreciate until they are forced to confront it. Absent a prior agreement, you generally cannot force another owner to sell their interest. In personal life, courts exist to separate shared assets when relationships fail. In business ownership, there is no equivalent forum. Without a buy-sell agreement, the path forward is dictated by corporate law, governing documents, and leverage, none of which favor clarity or speed.

The Cost of Waiting

The dispute dragged on for more than three years. During that time, the business incurred hundreds of thousands of dollars in legal fees, steadily draining cash reserves and putting pressure on profitability. Leadership attention shifted away from clients, employees, and long-term strategy and toward managing conflict, navigating legal risk, and containing the damage.

Resolution at a High Price

Eventually, the matter was resolved through a buyout of the spouse’s shares at a cost of approximately $2.5 million. The transaction ended the ownership dispute, but it left a mark. The business emerged financially weaker, operationally distracted, and emotionally worn down from years of avoidable conflict.

With the benefit of hindsight, it became clear that the outcome had little to do with market conditions or performance. The determining factor was the absence of preparation for an unplanned exit.

A properly structured buy-sell agreement would have established clear expectations long before a triggering event occurred. These agreements define what happens to ownership interests upon events such as death, disability, or retirement, including who is obligated to buy, who is required to sell, and how the price will be determined. The valuation method may vary, whether a formula for a closely held business or a formal valuation process for a more complex organization, but the critical point is that the rules are agreed to in advance.

Equally important is funding. Buy-sell agreements are only effective if the business has the ability to execute them. Key person life insurance is commonly used for this purpose, providing immediate liquidity to purchase shares from an estate without draining working capital or forcing the company into a prolonged dispute.

In this case, the absence of both structure and funding left the business reactive rather than intentional. Legal strategy replaced governance. Cash replaced insurance. Years were spent resolving an issue that could have been handled quickly, privately, and with far less disruption.

Core Lesson

The lesson is not abstract. The real cost of waiting was not limited to legal fees or the final buyout. It was the sustained distraction, erosion of trust, and loss of focus that followed an unplanned exit. Preparation would not have prevented the tragedy, but it would have protected the business from unnecessary damage at a moment when clarity mattered most.

Snapshot: Momentum That Looked Like Strength

The business was growing quickly. Revenue was climbing year over year, headcount was increasing, and new opportunities kept coming in faster than the team could comfortably absorb. From the outside, the company appeared healthy and successful, the kind of organization well positioned for a future sale whenever the owners decided the time was right.

Ownership was concentrated, with the founder still deeply involved in nearly every major decision. While capable managers were in place, the owner remained the central point of control, approval, and problem-solving. At the time, this was seen as a strength rather than a risk. The business moved fast, decisions were decisive, and clients associated the company’s success directly with the owner’s leadership.

Exit planning was acknowledged but vague. The intent was to sell at some point, once growth stabilized or the next phase of expansion was complete. There was no formal timeline and no sense that preparation needed to begin immediately.

Early Signs That Went Unexamined

As the company grew, small issues began to surface. Financial reporting lagged behind operational reality. Processes varied by team and were often undocumented. Key client relationships depended heavily on the owner’s direct involvement. While none of these issues felt urgent on their own, together they created a quiet dependency that went largely unexamined.

The owner believed the fundamentals were solid. Revenue growth was strong. Clients were satisfied. The leadership team was loyal. What felt “good enough” was never stress-tested against what a buyer would expect to see. The assumption was that growth itself would compensate for any internal messiness.

That assumption would later prove costly.

The Inflection Point

The moment of reckoning did not come from distress. It came from opportunity. An unsolicited inquiry from a potential buyer triggered serious consideration of a sale sooner than originally planned. The initial conversations were encouraging, and the headline valuation range aligned with the owner’s expectations.

As diligence began, however, the tone shifted.

Buyer questions exposed gaps that growth had masked. Financials were accurate but not decision-ready. Key processes lived in people’s heads rather than systems. Customer concentration risk was higher than expected once the owner’s personal relationships were taken into account. The leadership team was capable but not fully autonomous.

What had felt like momentum now looked like fragility under scrutiny.

Decisions Deferred Become Decisions Forced

Faced with buyer concerns, the owner had choices. Slow the process and invest time in strengthening the business, or proceed and accept the consequences. With momentum already in motion and advisors engaged, the decision was made to push forward.

Some changes were attempted mid-process, but they were necessarily reactive. Governance structures were introduced too late to carry weight. Efforts to formalize processes competed with ongoing growth demands. Attempts to reduce owner dependency raised questions rather than confidence.

The owner remained central because there was no practical alternative in the time available.

The Outcome

The transaction closed, but not on the terms originally envisioned. The valuation came in below expectations, with a significant portion of the purchase price tied to earnouts and future performance. Additional representations, warranties, and post-close obligations were required to offset perceived risk.

The timeline was longer than expected, the process more invasive, and the emotional toll higher than anticipated. What looked like a successful exit on paper felt more constrained in practice.

Reflection: Growth Is Not Readiness

In hindsight, the owner recognized that growth had created a false sense of security. Revenue masked risk. Busyness obscured fragility. The business had been built to perform, not to transfer.

What mattered more than expected was clarity. Clear financial narratives. Clear decision rights. Clear independence from the owner. What mattered less was top-line growth alone. Buyers were willing to pay for durability, not just momentum.

The single decision that had the greatest impact on the outcome was waiting too long to separate growth from readiness. By the time the exit became a reality, there was little room to reshape the business on favorable terms.

Core Lesson

Growth can make a business look strong, but only readiness determines how well it transfers.