What happens to your business if you die or become incapacitated before you exit your business?
A business continuity plan provides guidance and peace of mind to your family and employees in the days, weeks, and months following an unexpected exit from your business, yet it’s something that very few business owners have in place.
The good news is that it’s quick, easy, and inexpensive to create a business continuity plan for your business.
In today’s video, I’m explaining what a business continuity plan is, its key components, and how it can be an essential guidebook for your family and employees if you die or become incapacitated.
Click here to watch the full video or read the full video transcript, below.
What Is A Business Continuity Plan?
A business continuity plan, from the standpoint of exiting your business, addresses the family side of things and addresses details in the case of an unexpected exit. You might feel like you are covered with your buy-sell agreement, but these agreements are not robust enough to cover every type of circumstance in what will happen if you exit under various scenarios, death, incapacity, etc.
We are bringing all these things together in one plan that you can keep handy at all times.
Your Business Continuity Plan Outline
1. Who should tell your employees that you’ve died, or you’ve become incapacitated and how should it be done?
It’s important to designate one person to do this, someone that hopefully knows your employees.
- Do you want your employees told in person?
- Do you want your employees told right away? Waiting too long can spark rumors.
2. Should customers or clients be informed and how do you want that done?
Maybe you only want to tell certain people, clients or customers if they ask or do you want to send a letter to everybody.
3. How would you want your business to be transferred?
- Should it be transferred to a business partner or another employee?
- If a family member, do you want it to be an inside transfer?
- Do you want it to be an outside transfer? If it’s an outside transfer, the business continuity instructions should include a list of businesses or other serious potential buyers who you’ve talked with.
4. If you’re going to transfer your business, what is the desired minimum value that you want your family to receive?
5. What is that desired or bare minimum amount that you need to get for the value of the business in order to transition into retirement so that you have the financial resources that you need for the rest of your life or for the next phase of life?
It’s important to spell that out in the business continuity instructions in order to prevent your grieving spouse from accepting a low-ball offer.
6. Who’s going to be responsible for running the show at your company?
- Who’s in charge of finance, operations and administration?
7. What happens to the employee benefit packages?
- What happens to health insurance?
- Do you want the 401k plan to terminate? It’s important, long-term, to address how you want those benefits handled. Especially if you have unique bonuses.
- How do you want your family income stream to your family to continue and how will that be funded?
8. What might happen to the value of your business if you unexpectedly exit?
With just one owner, it’s extremely damaging to the value of the business and what you can get for the business after the owner dies or becomes disabled or is no longer able to continue running the business. Therefore, it’s important to address that because it might require you to look at purchasing additional insurance policies or coverage so that your family is still going to be taken care of and the business value won’t drop.