There has been a rise in entrepreneurial activity in recent years. If you own/operate a business, what steps have you taken to protect your business for you and/or your family? Pertaining to Business Matters – Are you Prepared? Let’s uncover important issues for business owners to consider.
Have you considered what happens if the business owner/key decision makers are incapacitated?
In many small businesses today, the authority for making important decisions rests with a single person, such as the sole proprietor, sole shareholder of a corporation, or a member of an LLC. Often times governing documents do not address who would make decisions in the event this person is unable to do so. If this key person becomes incapacitated, several important planning tools are available.
Gruesome, I understand. Yet, if you or any key decision-makers were to become incapacitated, would the right people have the authority to keep the company running and make essential decisions during that period? Are those contingent decision-makers aware of the plans and are they prepared to assume a new role to lead the business forward as smoothly as possible? What about cash-flow? Does it stop, if something happens to you/the owner? Have you considered the impact of this?
A limited power of attorney could be utilized to grant a key person the authority to make decisions and continue business operations. This type of document could be written so that it is limited in scope to allow the alternate decision-maker to act only if there is an event of incapacity.
Another option to consider is to establish an advisory committee to act in the event of the key decision maker’s incapacity. If your business has multiple executive level/key employees or multiple family members, this may be a solution for you. It is possible to structure decision making authority to named individuals to make key decisions by consensus.
It is also a possibility for a business owner to execute a specific document for use in the event of incapacity that transfers the business to a trust. This requires research in advance of local trust companies who have the business expertise and capacity to continue business operations on behalf of an owner.
Contingency planning in the event of the death of a business owner is an important element to formalize. Take note here that in many ways, this is similar to planning for retirement of a business owner. As business owners, we are advised to plan our exit strategy, as we create the business. This is so true! “Exit” can occur in more ways than one!
Asset distribution of personal assets is one matter, business assets are another. If survivors have not been involved in the business operations, the value of the business may suffer significantly, if plans have not been made in advance of the owner’s “exit”. Factors to consider vary based upon the business ownership structure, succession plans, and written intentions from the owner. Do you desire to offer an option for co-owners, executives, other employees or family members to purchase the company in the event of death? What about creating an employee stock ownership plan? How do you envision the involvement by family members whether they are currently involved in the business or not? Do you intend for family members to receive any income from the business if they are not directly involved with running the business? What about placing the company in a trust, allowing a business advisory team to continue the day to day operations while the family maintains cash-flow from the business while considering whether to step in to operate or sell the business? Has the business owner specified whether or not family members would need to purchase interest in the business? Clear plans and written intentions from the business owner reduce angst for everyone involved, especially if they are communicated in advance.
How do you as an owner view succession planning? This topic is important not only to your family and business colleagues, it is vital for your customer base to provide confidence that the business will live on. When steps are taken early, succession planning provides training time, allows the owner to evaluate competency of named individuals, allows for continuing operations/cash flow and implement changes, if needed.
Considerations abound with this highly sensitive topic. You’ll find that opinions about what to do are varied and ultimately, as a business owner, if you wish that your desires and clear intentions be followed, it is best to take action with a sound mind and written plans.