The Business Owners’ Special Series (B.O.S.S.) No. 29

As a business owner, you often focus on an optimistic future: revenue growth, landing new customers, developing new products, exploring new markets, the endless open road of opportunities. This is what drives your success. This why you are the entrepreneur, decision maker, mentor and leader. That is why your employees want to be a part of your business: They want to work for you.

Have you ever asked yourself: What would happen to everyone around me if, suddenly, I was no longer here? Would my family know exactly what to do with my business, or whom to turn to for guidance? Will my family understand my financial affairs, and know who can assist them in putting all the pieces of the puzzle together into a coherent picture?

It is not just the effect on family you need to consider, either. Will your management team know who is to step up and take charge? Will the designated new leader be aligned with your management team, and motivate them to keep rowing forward with the same focus they had when you were there? Will the changing of the guard be cohesive, or will there be potential disputes as to who is now in charge?

And do not forget your employees. Will they remain with your business because they are confident in your successor and the future of the business without you? Or will your employees abandon ship out of concern that the ship will not sail without you at the helm?

Will your competitors exploit your sudden absence and descend upon your customers like hungry wolves?

Every business owner should have a written exit strategy that will result in the most successful exit possible — one that is optimistic and realistically achievable by design. However, that alone would be a horribly incomplete and irresponsible exit plan.  An effective exit strategy must always anticipate that things can go wrong. It will include contingency plans, with specific steps to take when things do go wrong. Ultimately, in the event of your unexpected absence, death, or disability, your family members and key employees should feel confident that the ship will keep sailing in the right direction because your contingency plan explains exactly what each person needs to know and what to do.

Do Not Leave Them in a Maze.

Having no contingency plan in your exit strategy will throw your loved ones and employees into a world of chaos and confusion, potentially creating a detrimental situation. Do not t let your loved ones discover the myriad ways in which sorting out the financial affairs of a departed loved one can  be go wrong.

Without you there, the business that you worked so hard to build may lack a recognized leader, lose many employees, be exploited by competitors, and suddenly suffer a significant decline in value, resulting in the business being sold at an unfair or sup-optimal sale price. To protect your family, your employees, your customers and your business’ value, you must have a thorough contingency plan in place. The sooner you create your contingency plan, the better, as you want to leave your successors ready to hit the ground running regardless of when this plan is put into action.

Get It on Paper.

Having a contingency plan that exists only in your head has the same effect as having no plan at all. If you are suddenly gone, that plan that lived only in your head is useless. Your plan must be embedded in a written document.

No Secret Documents

Your contingency plan is the written instruction for your heirs and key employees: they need to know that the document exits, and where to find it quickly and easily.

What to Include in Your Contingency Plan

Although the following is not intended to be a complete list, it covers many important items that should be included in every business owner’s contingency plan.

Part 1: Your Family:

  • Assets: Provide a detailed list of all your assets of value. This list should include the estimated value and the location of these assets. Do not assume your loved ones will recognize the value or know the location of your mint condition, Roberto Clemente, 1955 Topps trading card, worth over $400,000.
  • Advisors: List all bank, brokerage, and financial accounts. Include institution names, addresses, web sites, account information, access information, and key contacts (name, phone number and e-mail address).
  • Insurance: List all insurance policies (home, auto, umbrella, life, disability, long term care, etc.). Include insurance company names, policy numbers, locations of policies, and insurance broker/advisor contacts (names phone number and e-mail address).
  • Safe Deposit Box: Disclose the location of all safe deposit boxes, and a list of what is inside each box. Include the location of the keys to those boxes, who might have a key to each box, or who is allowed access to these boxes. Make certain the boxes are free of documents that you would not want to be discovered.
  • Legal Documents: Identify and disclose the location of all significant legal documents. This can include your estate plan, the business’ buy-sell agreement, prenuptial agreement, patents, trademarks, copyrights, partnership agreements, incorporation documents, etc.
  • Direct Messages: Consider personal statements or messages that you want to leave behind for specific family members, and where these statements are located.
  • Social Media: Consider including a list of your social media accounts, how to access the accounts, and instructions as to your intentions with the disposition or specific use of these accounts when you are gone.
  • Contingency Plan Document Location: Consider this with great care. Your contingency plan document may contain very sensitive information. Your computer may not be the best place to store this information, as your laptop can be stolen and your network hacked. Remember that your loved ones have to know of the contingency plan’s existence and where to find the plan document.
  • The Business Contingency Plan Document: Your family members must know what becomes of the business in your absence. While this will be covered in the next section, remember that it is important for both your family and your key employees to know what will happen with the legal ownership as well as the leadership of your business once you are gone.

Part 2: Your Business

  • Ownership and Continuity: Your contingency plan should explain what happens to the legal ownership of the business. Will your family inherit it? Should they continue to run it or sell it? Will the company buy it from your heirs? If your plan is that your family will inherit it and keep it, they need to know who will assume your role in leadership and run the business operations. If your plan is for the family to sell the business, they still need to know who will be responsible for running day-to-day business operations before the completion of the sale. They will also need to know whose responsibility it is take the company to market and make the sale happen. The person who runs the company and the person who takes the company to market will most likely not be the same person.
  • Employee Incentives: Your plan should explain your day-to-day responsibilities, and who is trained and ready to step into your various roles. Remember that it often takes two or three employees to take over all the responsibilities of the founder. As employees step into new roles, include guidance addressing necessary title changes and compensation changes corresponding with the key employees’ new responsibilities. If a sale by your heirs is your plan, you may need to provide guidance as to financial incentives to keep key employees from leaving prior to completing the sale.
  • Training: Make certain that employees who are taking over your various roles have been trained and have actually done the job your plan assigns to them, so you can be confident that they are ready to step into the role successfully when suddenly required to do so.
  • Account Access: If your successors need log-in and access information to software or accounts, they should know where to find this information. Signature authority over business accounts should be pre-arranged for accounts that are necessary for the continuance of business operations.
  • Alternates: No matter whom you choose to succeed you in your roles or to guide the company through a sale, have alternates written in your plan. It is possible that not everyone who has been identified and agreed to assume the designated roles will be able to perform them when the need arises. Their lives could change too, and they may not be able to live up to the responsibilities assigned to them at that time you crafted your plan.
  • Buyback Plans: If the plan is for the company or key employees to buy the company from your heirs, the business contingency plan should include detailed information about that transaction. This can include information that answers who the buyer is, how the company will be valued, what will be the source of funds, policy information if existing insurance is involved, and the location of the buy-sell agreement, if one is in place.
  • In the Event of a Sale: Consider having an advisory board who will run the businesses and guide it through a sale for the benefit of your heirs. Make certain they are identified in your contingency plan, including their contact information. Include alternate advisory board members. Finally, include each advisory board member’s expertise, their role, and how they will be compensated through the duration of the sale.
  • Specific Advice and Guidance: Include any relevant information you want to communicate to your successors. If you have specific legacy intentions concerning use of company name, business location, who the business should be sold to (if a third-party sale is your recommendation), and who the business should never be sold to if you have strong opinions about that. Include any recommendations and advice you may have for your successors.
  • Document Location: As previously stated, your key employees and heirs need to know that the contingency plan exists, know the location of the plan, and be aware of any related legal documents pertaining to the plan.
  • Business Advisors: Include a list of all the business’ advisors such as the exit planning advisor, business attorney, CPA, banker, insurance advisor, and other business advisors. Include contact name, business name, address, phone number, e-mail, and relevant information regarding how they advise your company.
  • Write Down Your Daily Actions: As you begin each new task ask throughout your day, ask yourself these questions: if I was no longer here to do this, who else can do this, what information do they need, where will they find it, and what do I need to teach them? These questions should be applied to both business and personal financial responsibilities.
  • A Written Document Is Required: To reiterate: If your business contingency plan is not written down, it is worthless. If no one knows of its existence and where to locate it, it is useless.

Moving Forward

  • Do Not Delay: This is not a complete list of what should be included in your business contingency plan, but it is a good start. You should put a contingency plan in place as soon as possible, knowing that you can always add to this document or modify it at any time. You should also consult your exit planning advisor, business attorney, CPA, financial advisor, wealth manager and estate attorney for their input on what other information should be included in your specific contingency plan.
  • Practice: Consider doing a dry run. Pick a date, turn off your cell phone, and take a holiday, alone. Let key employees step into your roles for that day. Have your heirs contact all your professional advisors and make certain that the entire team is ready to take over when the time comes.

Perilous Myths:

  • “Silence Is Golden”: No stakeholder in your business should be surprised when the contingency plan goes into effect. In fact, your entire written exit plan, including the contingency plan component, should be discussed with all stakeholders in advance. All concerns, questions, criticism, and feedback should be effectively addressed and communicated to stakeholders. You want to minimize potential discord among family members long before the contingency plan is forced into effect. Similarly, make certain that all key employees understand their role and responsibilities and are ready, willing, and capable to step-up and assume the responsibilities in your plan. The same is true for your advisory board members.
  • “I Have an Estate Plan in Place, so My Business Contingency Plan Is Complete”: An estate plan is not a business contingency plan. It is not a succession plan. And it is certainly not an exit plan. Your estate plan should be in sync with your business plans, but your estate plan is only one component of your exit, succession and contingency plans. Your heirs and successors need far more guidance and information than what is included in your estate plan.
  • “An Exit Plan Is Only a Plan for Selling a Business”:  A business exit plan is a practical plan to align your business and personal goals for the most successful outcome, regardless of whether that involves a sale or inheritance. It also includes business contingency plans in case things go down a far different path due to life’s many surprises. An effective exit plan will provide for the best possible outcome for you and your heirs in alternative situations.

Your family should benefit from an exit plan to optimize business value. Your family should also be protected if things do not go as planned. You should have a written exit plan in place, and it should include a contingency plan to give your heirs the maximum protection when life changes your plan, suddenly and unexpectedly, as life often does.

Discover More Exit Planning and Value Acceleration Insights

This article is No. 29 in the Business Ownership Special Series (B.O.S.S.), an ongoing cycle of informational guides from BPM designed for business owners who are proactively seeking guidance from experts on how to implement value acceleration in their business, delivered each month straight to your inbox.


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