As business owners approach their business exits, there are several commonsense actions that they tend to take. Many owners set personal and company goals. They look to increase the value of their businesses so that once they exit, they never have to work again unless they want to. They choose which Exit Path they think might be best to achieve their goals, and many work to get their estates in order to assure their families’ comfort when they die.
The common thread among these commonsense actions is that these business owners assume that everything they plan for will go off without a hitch. More specifically, they assume that they will not die suddenly, will not become unexpectedly and permanently incapacitated, and will not be blackmailed by key employees looking to capitalize on their exits. But sudden death, incapacitation, and even blackmail are more common than most business owners realize, and many don’t address them because they don’t think they can happen to them.
It makes sense that most business owners avoid conversations about what could go wrong in terms of their businesses. If most business owners spent their time worrying about all the things that could go wrong, it’s likely that they’d have never founded their businesses in the first place. Founding a business is a risk taker’s enterprise, and business owners understand the upside of calculated risk. However, as their businesses grow, owners should understand that there’s more at stake than just their pride and initial investment in the business. If sudden death, incapacitation, or blackmail enter their business-exit equations, it can send shockwaves beyond their own lives, affecting the lifestyles of their families, their employees, and their communities.
How can advisors help owners address these scenarios?
Business Continuity Is an All-Inclusive Answer
Business continuity is a core aspect of successful Exit Planning. It prepares owners for extreme “what if” scenarios—such as sudden death, incapacitation, or blackmail—and addresses less challenging, more run-of-the-mill issues that are part of most business exits.
A comprehensive business continuity plan addresses every aspect of a successful business exit. It allows advisors to set up a chain of command that becomes active when an owner dies or becomes incapacitated, allowing the business to run seamlessly even in the owner’s unexpected absence. It incentivizes key employees to continue their top-notch work even as the owner begins the process of exiting, making it more lucrative for key employees to help the owner exit than it would be to force the owner to pay exorbitant amounts to keep them from leaving or damaging the company’s value. It even guides the owner’s family members regarding how they can manage any unexpected situations with minimal stress or changes to lifestyle.
Often, the only way a business continuity plan can do these things is if advisors introduce business owners to the concept and have the tools to carry it out.
Isn’t a Buy-Sell Agreement a Business Continuity Plan?
Many business owners create Buy-Sell Agreements for their companies and consider themselves protected. While a Buy-Sell Agreement is certainly better than nothing, it also typically fails to address more complicated situations, primarily because owners often fail or forget to update them as the company changes. A Buy-Sell Agreement written 10 years ago to address an unexpected death can have unintended consequences and implications if the company has changed in those 10 years (and if it’s a successful company, you can bet it has changed).
That’s why BEI Exit Planning Advisors use BEI’s Business Continuity Instructions tool (BCI). The BCI addresses the basic issues that Buy-Sell Agreements address—such as buyouts at death or resulting from permanent incapacity—and it goes farther. Because the business’ success affects other people beyond the owner, the BCI considers the owner’s goals for the business, his or her family, and his or her employees. It walks owners through all the what-if scenarios in an organized way while allowing advisors to compile all of the owner’s goals, needs, and strategies to achieve those goals.
After owners and advisors establish goals and possible strategies, Exit Planning Advisors combine the BCI with BEI’s EPIC software to build full, complex business continuity arrangements for more-complicated ownership structures. This helps business owners avoid the trap of oversimplifying their strategies to assure business continuity.
Because the BCI’s objective is to assure that the business runs smoothly regardless of whether the owner is present, it inherently helps retain key employees, build business value, and make the business more attractive to potential buyers. This means that whether business owners plan to exit now or never, Exit Planning Advisors have a value proposition for all business owners through business continuity. Even if owners never plan to exit, the BCI helps them address aspects of the business to help it grow, thrive, and survive both the routine and the extreme.
Business continuity is a worthwhile discussion for business owners and their advisors. It helps owners protect against the unexpected while strengthening the foundations of their businesses. It lets Exit Planning Advisors introduce the concept of Exit Planning in ways that go beyond how owners want to exit their businesses, which can open a discussion of the business owner’s needs, both now and in the future. And it creates common ground for owners and advisors to discuss the best ways to grow, strengthen, and secure the business, regardless of when and how owners want to exit.