succession planning untimely death

Business Succession Planning: Unexpected Death

While planning for retirement is a fun part of the succession planning discussion, we must also cover the less pleasant subject of planning for an untimely death. Most of this information also applies to a permanent disability as well. According to Forbes, three out of five business owners are left vulnerable to consequences of an unexpected tragedy.

It’s April 30 and a business owner client of mine (Bill) has passed away and his spouse calls me. The spouse (Maria) is in a panic. She has never been active in the software Bill owned. Bill died of a stroke just 3 days prior. Maria just came to the realization that she didn’t know if there was money in the bank for payroll on May 4.

Together, we went through a series of discussions that day. I was able to give her all the contacts Bill and I shared with the law firm and financial planner. I was also able to provide information for his payroll service, banker, and the bookkeeper that worked on Bill’s software company. Bill’s management team shared the same concern. Who would run the company, oversee decision making, and make sure clients did not leave?

Planning for this situation, is a challenge as people do not like planning for these unfortunate events. However, there are a number of basic questions and scenarios to consider now. This will help make the situation easier on your surviving family members and employees.

Questions and Scenarios to Consider
  • Do you have life insurance in place that goes to the business to provide a boost to the company’s cash flow should something happen to you?
    • These funds could be used to hire a CEO or consultant to run the company while things are figured out.
  • Have you thought about what you want to happen to the business if you pass away?
    • If so, have you documented it in writing and shared it with your spouse, advisors, and/or management team?
      • Things like:
        • Would you want the management team to use life insurance to buy shares from your estate and run the business as owners?
        • Do you want to leave the business to your children and have them run it? Or hire a CEO to run it?
        • Should the business be liquidated and sold through an M&A transaction? If so, how do you incentivize the management team to stay during this time?

It is impossible to plan for every scenario a business could go through but it is helpful to consider a few possibilities. It is a business that you have built and no one knows better what you want the next phase to be of your legacy, than you. Begin this process today. Have discussions and documentation to help build a succession plan that stands up to many scenarios but provides flexibility as your life and business grow and change. Let us know if you need help with your business succession planning – set up a no-cost consultation today!