What Will Happen to My Business When I Am Not Here?
April 2, 2023
Courtesy of Nadine Burns, MBA, AIF®, CFP and President and CEO of A New Path Financial, LLC
What will happen to my business when I am not here? Business owners need to ask themselves that really important question. We all know the adage of two certain things in life: Death and Taxes. Hopefully with a competent accountant, you are able to limit the taxes to those you only actually owe. Death is harder to circumvent, and we are reminded of that in the Steve Jobs 2005 Commencement Speech where he made the statement, “Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose.”
Back to the question, about your business – what would happen to your business if you were no longer able to operate it, if you became ill, or passed?
Recently the owner of a local construction firm passed. He had been ill with heart issues, but the stage that took him happened far faster than he and his family ever anticipated. We had been asking him for a few years what his plans were for retirement or his untimely death, and like most of us, he believed he would continue into a long future. In the end, he did put a Trust together very quickly in his last month of life, leaving everything to his wife, now widow.
The issue is that his widow had to make many decisions to keep the business running immediately after his passing, then decide if the business would continue to be run by current employees and family members; closed and liquidated or sold to a complete third party. These issues ended up costing her some employee and family relationships, attorney fees, and stress in a year she was going through a severe loss. The one thing that was certain before he passed was that she did not want to run the business.
Instead, as a prudent owner of a business, you really do need to ask yourself, what would happen to my business if I did pass away suddenly? Who would take over? How would those you are responsible for continue to have an income flow if something happened to you? Would your ownership be compensated through a sale? Can the people that you want to buy you out actually obtain the financing in order to do so? Do they have the skills needed to step into your shoes? DO THEY WANT TO?
As you create a business plan this year, you also need to create an EXIT plan. This plan should be in the form of retirement from the business as well as any sudden loss of your ability to run your business. Yes, we know an 80-year-old for President of the United States is a reality, but so is a 24-year-old football player having a cardiac event in front of millions of observers.
In the case of my own small business, I do have a Buy/Sell agreement with another advisor. My husband and team know about that plan. I also have life insurance, a term policy that can be converted to permanent if I choose to, that will help my husband continue the firm through any transition period and pay any of his obligations. In the meantime, we are bringing on younger staff and will add them to the Buy/Sell agreement if they are willing to meet the terms of that agreement.
In your plan, consider:
- What are all the options for your business if you are not available to run it?
- Has your business been valued? Has that valuation been updated at least every 3-4 years? (How can you plan if you do not know what you have?)
- Develop your plan options: Sell to a 3rd party, sell to internal participants, liquidate, and close.
- Have you communicated your plan to that/those individual/s that might be impacted?
- Is financing in place via credit, life/disability insurance?
- How will the firm function organizationally and financially if you are not in the picture?
- How will your family or any obligations you personally have continue to be compensated if you are not able to do so?
- Do you have documents completed with the proper professionals?
- Beyond documents, have you implemented any steps the documents require?
- Sleep at night, knowing you have taken these important steps for your business, your family and your legacy.
According to a recent State of Small Business Survey, more than half (54%) of America’s small business owners are over 50. Specifically, 33% of U.S. small business owners are between 50 and 59 years old; 17% are 60 to 69 years old, and 4% are 70 and up.
For these individuals, creating a plan is no longer something to put on next years’ to do list, it must move up in your business priorities.
Nadine Burns is a Certified Financial Planner® Professional and was the President of the Michigan Chapter of the Financial Planning Association in 2021. She is President and CEO of A New Path Financial® where she works with small businesses, especially those run or managed by women.