Planning For Unplanned Business Succession
As a business owner, everyone tells us we need to begin planning our ‘exit strategy’ long before it happens.
Whether you’re intending to run your business until you retire or build it up quickly and sell to the highest bidder, it is ingrained in us early on to think about what will actually transpire at the time when we decide to move on.
What we often forget to consider is what would occur if an unfortunate (and unplanned) turn of events prevented us from carrying on the business.
Let’s assume you are in partnership with your best friend, business is going great and everything is bustling along. You’re both married and he’s got children, you don’t really get along with his wife all that well but it doesn’t really matter – it’s not like you have to work with her right?
Maybe, or maybe you’re wrong… if said mate departs the earth unexpectedly, you’ve got a couple of problems:
1. You’re now in partnership with her and she wants in. She wants to start making business decisions and coming into the office every day to protect what she now owns; or
2. His share of the business needs to be sold as soon as possible as your partner’s wife needs to release funds to look after their children and try to rebuild their life. You need to either come up with the cash, or quickly find someone to buy in, someone that will fit your culture, ideas and share your vision for the business.
Neither would be an ideal result. Both situations would put undue financial stress on the business during an already difficult time.
So, how do you plan for an unplanned business succession?
The first step is to sit down together and work out what you would want to happen.
This may include the business partners, their respective families and a trusted adviser, and begin to create a ‘business will’. It is a good idea to document your decisions and perhaps have a solicitor involved. To get around the need for a lump sum, you can put in place an insurance policy insuring each of the business partners and providing a cash injection to the business (for the value of their % ownership) which would be used to pay out the partner’s family for their share of the business, leaving only the remaining partner as business owner.
What about a sole business owner?
Granting a trusted friend or colleague power of attorney could provide you with some peace of mind if you’re incapacitated. Someone would have access to your bank accounts and business records in order to keep the day-to-day things moving.
Insurance can also be put in place to cover you for up to 12 months of fixed business expenses if you are unable to work, which can allow you time to get back on your feet, or allowing you appropriate time to sell the business.
Need some help planning? To chat money and business with the WE team, book in a time for a Free Strategy Session.
Disclaimer: Information contained within this article is of a general nature. Do not be rely upon it when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.