Business Strategy

Business Continuity Planning: Preparing for the Biggest Unknown of All

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    • Kris Karnes

      Sr. Director, Business Owner Advisory Services
      Jul 11 2022

Business Continuity Planning: Preparing for the Biggest Unknown of All

By: Kris Karnes, Senior Director, Business Owner Advisory Services

When putting together a business continuity plan, many company owners prepare for disruptive events, such as a natural disaster or even a global pandemic. However, there is another type of disruption that not enough businesses plan for: What should happen if an owner becomes incapacitated or dies?

It’s time to learn why addressing ownership continuity is so important and find out what to consider when creating your ownership continuity plan.

Understanding the Critical Nature of an Ownership Continuity Plan

When the unexpected occurs, such as the death or disability of a business owner, there will be a significant impact on company operations. Without a continuity plan to pass on critical knowledge and outline next steps, the consequences could easily affect the very survival of your company, as well as damage the financial future of your heirs.

The goal of continuity planning is to equip an owner, their employees, their family, and the business with specific instructions identifying critical functions and how they will continue without the owner’s involvement. 

A properly prepared plan will help address critical factors, such as:

  • Identifying trusted advisors to help guide family members through the transition.
  • Establishing who within the business will handle each responsibility, including necessary communications.
  • Outlining insurance policies and coverage.
  • Identifying how survivors can handle or extinguish personal guarantees.
  • Setting up how the business owner’s family will either continue to hold the business interest or establish parameters for how much of the business interest should be sold. 

A plan that addresses the points above can provide essential guidance to help ensure the business continues without disruption, and yet 48% of small businesses are operating without a plan. This risk is magnified when you consider that the majority of small businesses are owned and operated by one- or two-person teams, where the loss of key talent and knowledge will be keenly felt.

Developing an Ownership Continuity Plan

When developing a continuity plan, it’s important to start with a firm foundation. We ask business owners to first consider how the business would operate if they suddenly weren’t able to perform daily functions. 

Would other owners, managers or staff have access to critical information, such as the combination to the safe or how to access your email? Other top-of-mind issues include whether managers have enough training and knowledge to make critical day-to-day decisions or the experience to initiate payroll processing.

Often, the early planning steps deliver unexpected benefits by uncovering existing gaps in operational processes. While working with clients to prepare continuity plans, we have had business owners realize they need to make immediate adjustments, such as adding signers on checking accounts, increasing the number of authorized parties on payroll processing, implementing management succession training and augmenting insurance coverage, just to name a few.  These early alerts allow owners to take care of issues now that improve performance and outcomes long before their absence.

Once critical issues like these are identified and instructions are developed to cover operational processes, business owners can move on to answering more sensitive questions, such as whether your spouse would know how to harvest the value of the business you’ve built, and who he or she could trust to assist in resolving these issues? 

Some owners may institute a buy-sell provision, funded by life insurance or disability buyout insurance, to ensure the appropriate passage of business ownership to other partners. While this approach makes it possible for remaining owners to acquire your business interest and can help compensate your survivors for loss of income, it’s vital that documents are kept up to date.

Carrying Out Your Continuity Plan

After creating a continuity plan, we encourage business owners to gather all essential parties to talk through how the plan will work should the unexpected occur.  This could include family members, the business management team, attorneys, accountants, insurers and bankers. 

Thoroughly reviewing the plan ensures that all parties are on the same page, the owner’s wishes are clearly communicated, and plans can be implemented immediately upon the death or disability of an owner.

As much as you may resist thinking about your own mortality, as a business owner you should realize the impact your death or disability may have on your company. A plan can secure the financial future of the business as well as the family left behind. Most important of all, it’s never too early to start preparing your plan.

About the Author

In her role as Senior Director of Business Owner Advisory Services, Kris Karnes employs her past experience as legal counsel, combined with a dedication to client success, to offer advisory services to owners considering a business transition or sale. She assesses the current situation, discusses the owner’s objectives and needs, and helps owners and their families maneuver through the emotions and decisions associated with selling or transitioning a business.

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.