Step Six: Developing a Contingency Plan for the Business

Death. Permanent Incapacity...

Generally, owners have more pleasant endings in mind when they think of exiting their businesses. Unlike car racing, owning a business is not commonly perceived as dangerous or life threatening. But we all know many more owners who died owning their businesses than racers who died at the wheels of their cars. The point is this; it is easy to overlook or to avoid this part of the Exit Planning Process. Without continuity of ownership, the business hits the wall. If ownership transition is uncertain, business continuity is not only uncertain — it's doubtful. But business continuity is much more than simply making sure there is a new owner.

Failure to be aware of all of the dire consequences upon a business of the owner's death can mean the unintended demise of the business along with its owner. Our Exit Planning Process requires you to re-examine your existing contingency plan and, at the very least, update it for current values and current exit plans.

Consideration should be given to the consequences of an owner's death upon the business's ability to maintain its bonding status, its financing capability, its relationship with key customers, vendors, and other parties important to the ongoing success of the business.

A business poised for sale is most vulnerable. It has peaked in value, but the event creating liquidity (the finish line) is often a year or more away; and, for many owners, several years away. Work with your legal and insurance advisors to make certain the business is protected in the event you depart from the business instead of the business departing from you. Providing business continuity planning is a necessary element of the overall strategic Exit Plan.

Resources

Library

Business Continuity White Paper - This white paper discusses four primary problems sole-owned and co-owned companies face when an owner dies or becomes disabled. It proposes solutions to each one of the four problems. This white paper also includes the "Business Continuity Instruction Form" for sole-owners. "The Completely Revised How to Run Your Business So You Can Leave It In Style." — See Chapter 11: "Planning for the Unforeseen." The Exit Planning Review™ eNewsletter You can request these materials by contacting BEI.

Team

Exit Planning Professional Financial/Insurance Advisor Business Attorney Find An Exit Planning Professional In Your Area

The Bottom Line

Your Exit Plan must ensure that the business continues if you don't. Few owners have an updated business continuity plan that reflects the true market value (as determined in Step 2) of their ownership interest. This plan includes a buy-sell agreement when the business has multiple owners or a "stay bonus" plan for employees in single-owner companies.

Go to Step Seven

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