For both owners and advisors, the concept of business continuity is important. Business continuity is how a business survives and thrives after the owner dies, becomes incapacitated, or otherwise leaves the business unexpectedly.
For co-owned businesses, business continuity conversations almost always begin with Buy-Sell Agreements. Properly drafted Buy-Sell Agreements are a part of what makes business continuity successful for co-owned businesses when one owner dies or becomes incapacitated.
But what about owners of solely owned businesses? Does business continuity play any role in their successful Exit Plans? The answer, somewhat surprisingly, is a resounding yes.
I think it’s impossible for sole owners and their advisors to properly answer the question, “What will happen to your business if you don’t make it to your planned exit,” unless they’ve worked together through Steps One and Two of The BEI Seven Step Exit Planning Process™ . Only then will owners and advisors understand how a sole owner’s death or incapacitation will negatively affect business continuity efforts.
Business Continuity for Sole Owners
The best way for sole owners and their advisors to engage in business continuity planning is to begin with lifetime Exit Planning. In this series of articles, we have followed the efforts of Exit Planner Sally Campos to motivate Miles Smith, the sole owner of an environmental remediation business, to engage in Exit Planning. We’ve watched how identifying Miles’s goals (Step One) and quantifying the business resources available to achieve those goals (in terms of his management team; Step Two) ignited his commitment to begin Exit Planning now.
Let’s look at how Sally’s use of the Exit Planning Process exposed Miles to his business continuity problem, a problem he didn’t know existed before working with Sally on his lifetime exit wishes.
From Lifetime to After-Death Continuity Planning
Sally and Miles had made inroads in their Exit Planning discussion. Since they last met, they had managed to address several nagging issues standing between Miles and a successful Exit Plan:
“Miles, we know that the business can’t run without you,” Sally began. “You, the Advisor Team, and I are discussing several strategies to address this, but in the meantime, I have one more question: If the business can’t run without you, what happens if you get hit by a truck today?”
Miles didn’t miss a beat. “Then my business would die with me.” Before Sally could ask, he continued, “I know you’re going to ask me what I have done about that. And I also know you know my answer, ‘Nothing.’”
“Well, that’s not entirely true, Miles,” Sally said. “We might not be there yet, but we’ve started addressing your goals and figuring out how to make sure you have what you need when you leave. For sole owners, those are the first steps in creating a business continuity plan.”
The Steps that Sally walked Miles through in their first meetings and her work with her team to design a plan to ensure his successful exit from the business exposed all of the strengths and weaknesses of Miles’s business. In other words, this was a classic Exit Planning engagement.
Once Miles realized that he could not transfer his business today without him remaining at the helm, dealing with his premature death became a priority.
Two essential elements of any Exit Plan, regardless of a sole or co-ownership, are business continuity and estate planning. You might assume that we tackle these two near the end of the planning process, since they are, after all, Steps Six and Seven.
However, I’ve learned that once owners appreciate the size of the financial gap they must bridge to exit successfully during their lifetimes, their attention naturally and almost immediately turns to ensuring (and usually, insuring) that the same gap is filled should they die before they exit. Fortunately, The BEI Seven Step Exit Planning Process allows owners and advisors to address issues however they see fit, once they’ve completed Steps One and Two.