We regularly get calls from estate attorneys who are trying to deal with a business (or businesses) that a client didn’t make contingency plans for. Now, because of the owner’s death, everything has come to a grinding halt.
The sort of steps you need to take to make your business ready for a long illness or even your death are pretty much the same steps you need to take if you want to take a long vacation. So, why not take those steps and take a vacation to reward yourself and test them out?
Create a Comprehensive Succession Plan
You need to document who takes over leadership in case you are out of the picture. You need to think of the short-term answer, over a 30-90 day period, as well as a permanent solution. If you don’t have potential successors in place on your team, you need to identify external ones, or perhaps note that the business will have to be sold.
This documentation will need to include transition timelines and training protocols. It’s also not a one-and-done plan. Update it once a year or after major life and business events.
Build a Strong Team
We noted above that you might not have someone in place to take over and run the company strategically, but that shouldn’t stop you from having the right team to run the company on a day-to-day basis.
You can create fail-safes by making sure key employees are cross-trained and make sure to keep documentation of critical processes, using tools like Loom to speed the process.
Make sure you are developing a team that doesn’t look to you for answers to every problem, but is empowered and trusted by you to make decisions in your absence.
Have Insurance
The succession plan we alluded to above, which may include a search for your successor, can be paid for by key man insurance. That same insurance can also be connected to a buy/sell agreement, allowing your family to have some agency on what happens to the company in your absence.
You might also consider disability buy-out insurance, which could fund a buy/sell agreement should you become permanently disabled and are no longer able to carry out your key functions.
Have a Buy/Sell Agreement
You’d be surprised how often we run into partnerships with no existing buy/sell agreement. It doesn’t have to be complicated, but it should be thorough. It is an important document that dictates what happens to your ownership upon retirement, death, disability, divorce, or some involuntary transfer of owner shares.
As with the succession plan, make sure that this gets updated regularly, particularly when you have valuations done or ownership percentages change.
Align Your Estate with Your Plans
If you’re only taking care of the business, you’ve only halfway solved these issues. You need to make sure that the succession plan and agreements we’ve mentioned already are in step with your personal estate, whether you have a revocable living trust, a will, or powers of attorney, etc.
You can write out your vision for the company in your absence so that your trustees/executors can assist your business(es).
Have a “Safe Room”
There should be a single, secure, accessible location that has all your:
- passwords and logins
- bank details (and make sure you have designated signers on the account other than yourself)
- insurance policies and agent contacts
- vendor and customer contracts
- Tax returns
- Attorney and key advisor contacts
- Instructions for how to run payroll, how to bill, what the procedures are for collections etc.
Multiple trusted people should have access to this “safe room”, whether it’s something virtual or physical, and it needs to, as other items on this list, be updated periodically.
If you were only to implement half of this list you will dramatically increase the odds that your business, and the people you employ and take care of, succeed in your absence.
If you need templates or referrals to people who can help you with these things, we know a lot of good people. Contact us and we will connect you.