If you own a business, you’ve likely already thought a little bit about what might happen to your family and work if you’re sick for an extended period of time, suddenly incapacitated, or unexpectedly pass. If you’re the only person in your business, or the only owner, this question becomes even more critical. But have you planned enough to prevent havoc for your family, employees, or business successors?
You may not have taken your planning far enough, or formalized it enough, to actually help your employees, business associates, or family navigate your business without you, for however long a period of time. In fact, about 58% of small business owners in 2018 did not have a succession plan at all[1].
Granted, some of those business owners likely don’t intend for anyone to buy the business or succeed them after they’re finished working. This is particularly true for some sole proprietors or consultants for whom the business is that person. Regardless, if something were to happen to you, would anyone know how to help either maintain the business or close it down properly?
Contingency Plans
Let’s play the “what if” game: what if you were in the hospital for an extended period of time and couldn’t physically show someone where to find key documents? What if you fell ill or unconscious? What if your business needed to pay invoices or bills but no one knew how to get into your accounts to pay on your behalf?
Don’t let the “what ifs” become certainties. It’s helpful to take some time and come up with answers to these questions. Identify some or all of the following:
- Who would be a likely manager in your absence?
- What would that person need to know and how could they access this information?
- What powers of attorney might your manager or representative need in order to act in your place?
- What would you want to have happen with your business if you pass unexpectedly, or are out of commission for a lengthy period?
- What contracts do you have in place that need to be maintained or renewed, and what guarantees or deals did you have in place that would also need to be maintained? This is especially important if some of those deals or guarantees were verbal or done on a handshake and may not be known to your manager or representative.
Once you’ve identified some or all of these answers, you may want to have discussions with the people you intend to have act in your stead. Make sure they know and understand what you intend and would want to have happen.
Buy-Sell Agreements
A buy-sell agreement, sometimes known as a buyout agreement, is a written agreement that controls what happens to your stock in the business following specific events. It documents who would assume ownership of the business in the event of your death or incapacitation. But it only names the successor for official purposes; these agreements don’t necessarily identify day-to-day management issues or assist in actual responsibility of the business – they simply allow your successor to assume responsibility.
Document and Store Important Paperwork
Document everything and store it in a safe place, which could be a fire-safe storage option in your business or home, or a safe deposit box.
Some of the items you likely need to document are passwords and account information, client lists and contact information, bills and other financial items, and if you have employees to pay, ensure that their paychecks will still go out.
[1] The Motley Fool. August 3, 2018. https://www.fool.com/careers/2018/08/03/most-small-business-owners-lack-a-succession-plan.aspx