This issue brought to you by:
Three issues confront a company whose owner dies or becomes disabled prior to a planned exit:
- Continuation of ownership;
- Company’s loss of financial resources; and
- Company’s loss of key talent—you, the owner—and the cascading affect on employees and customers.
Today let’s look at how the loss of an owner affects both sole-owned and co-owned businesses.
Problem for Sole Owners. Your death will likely have the same impact on your company that the death of any one of your key people would have. Your talents, experience, relationships with customers, employees and vendors may be quite difficult to replace (especially in the short term).
Once you are gone, expect employees to jump ship unless you’ve made careful contingency plans. Without employees, your company is likely to default on its contractual obligations. Without planning few businesses have the financial resources or successor management to weather this storm.
Problem for Co-Owners. Multi-owner companies experience the same losses as solely-owned companies, if the remaining owners do not have the experience or talent to replace you. If you are the person who generates new clients, heads operations or maintains most of the company’s key relationships, your death or disability will, at best, jeopardize your company’s survival.
Solution for Sole Owners. Sole owners should create written stay bonus plans to motivate their key employees to remain with the company after the owner’s death. Additionally, you should create a succession of management plan that names the person who will assume your duties. Finally, you should decide now how you want your company to be preserved. Do you want the company to be sold, continued, or liquidated?
Solution for Co-Owners. If your co-owners do not have the skills and experience to replace yours, you must put in place a plan to give them the skills and experience they lack. If your employees are confident that the surviving owners have the skills necessary to bring in new business, run the operations or maintain key relationships, they are less likely to jump ship.
Certainly, business continuity requires cash—usually in the form of life insurance proceeds. But continuity requires more than cash. Your company will need to fill the talent void created by your departure. To do that, you must encourage (perhaps with cash through a stay bonus plan or perhaps through the offer of ownership) existing management to stay. If your business does not currently have, in place, management capable of assuming the reins, you must make it a priority to find and hire that management now.
If you would like to discuss how you can go about managing your company’s continuity, please contact me.
Subsequent issues of The Exit Planning Review™ provide balanced and advertising-free information about all aspects of Exit Planning. We have newsletter articles and detailed White Papers related to this and other Exit Planning topics. If you have any questions or want additional Exit Planning information, please contact us.
|Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code or; (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
© Copyright 2013 Business Enterprise Institute, Inc. All Rights Reserved