When is the right to time do business continuity planning if you are a sole owner or have a family business you would like to eventually hand off to children? It’s right now.
Here is a story that illustrates the importance of starting the process right away. A business owner of a local outfitter went missing while in the back country. Once probate proceedings started the store was already in trouble. The owner has given little thought to what would happen assuming he would sell it before retiring.
Planning necessary for a business to survive
There are some steps that can be taken to have the right processes in place to keep the business thriving. An initial consideration is how to get top employees to stay during a time of transition. To keep these employees:
- Consider an incentive compensation plan that vests over time.
- A stay bonus funded with life insurance is another way to ensure key staff will remain after the owner’s death.
Communicating with employers and creditors that a continuity plan is in place for the business is often as important as the planning. Communication failures are when misunderstandings can occur that undermine the most carefully laid out plans.
A written succession plan should name who will take over the day-to-day operations of the business, whether the business should be continued or sold and resources heirs may consult during the process. Working with insurance professionals is another piece of the puzzle. As insurance policies may be used to pay off capital assets or provide liquidity through transition.
Putting together a tailored business continuity plan provides the guidance that loved ones will need to know what to do if the unexpected occurs. These discussions can be a part of a personal estate planning process, because often the business succession strategy will affect how gifts are structured.