• KimSiegers-Robinson

Emergency proof your business

Does the death of the business owner mean death to the business? It doesn’t have too. Ask yourself how resilient would my business be without me?


An emergency transition is the worst way to exit a business because the owner has suddenly died or is incorporated due to a serious illness or injury.


Let's take a look at a case.... Jeremy owns a niche financing company which provides concierge service and greater flexibility of terms. His business is his pride and joy.


Jeremy is in a tragic car accident and is in a medically induced coma. Prognosis is unclear. Everyone is in shock – his family, friends, employees, key clients and relationships.


His business immediately enters chaos while everyone tries to figure out what to do. The senior employees aren’t sure who to take direction from, what to communicate or whether to keep the offices open.


Jeremy’s power of attorney is his wife, who has not been involved the business. Jeremy is the only person with access to the corporate bank accounts and many areas of the business are at a standstill.


While family understandably focused on Jeremy’s medical situation, the staff at the office begin to get antsy. Jeremy has a great team, however, he makes all of the decisions, drives the bigger deals and the business needs him to create future growth.


Jeremy remains in a coma and after 2 months, prognosis of a full recovery isn’t positive.

Some major questions need to be answered:


· Who will be stepping in to run the business?


· Who will make sure the employees are paid? How can we make sure we retain them?


· How long can the business wait for Jeremy’s recovery? Can Jeremy be replaced on an interim basis? Can someone internally step up?


· When would the business be sold? And to whom?


In this case, the team initially rallied and held onto current business. Because Jeremy was the critical link to driving new business, financially the business began to suffer.


After 6 months, Jeremy was taken off life support and died. The business was sold a year later at a significantly reduced price.


Owners assume that if they are alive, they will be able to direct the critical decisions required, and it is often not the case. The business may be vulnerable to the loss of the owner’s talents, experience and trusted relationships.


How can we minimize the impact?

An emergency transition plan transfers control, protects value, reassures key relationships and stabilizes the business. It moves people from panic to action. The right actions – and quickly. You can assess the strength of your emergency plan in 4 key areas:


Emergency transition team:

· Who will be making the decisions and leading the company day-to-day?


· What functions are highly dependent on the owner or key people that need to be replaced (on an interim or permanent basis)?


· Are the Executor and Power of Attorney ready for what will be asked of them? Will they need guidance?


Documentation:

· Is the documentation (e.g. shareholders agreement) up to date? Is it clear what will happen under all scenarios? Assess your own documentation and review if it would provide for clear decisions to be made in Jeremy’s situation.


· Is there a checklist in place to guide emergency decisions? The checklist includes items such as the location of critical information, contacts, banking details etc. It also outlines direction from the owner such as what messages to deliver, who will step into to handle key functions etc.


Business operations:

· Are all processes documented and easy for someone else to pick up?


· Is there a client management system in place to ensure key information isn’t only in someone’s head?


· Would work in progress key projects etc. be easy to identify?


Financial:

· Is the valuation methodology clear, up to date and easy to implement?


· Is there adequate funding in place for both death and disability? Are we clear on what insurance policies we have and what they are to be used for?


· Is the business prepared for a period of negative cash flow due to a stalled revenue stream and additional expenses?


An emergency transition is a time sensitive, highly emotional and pressure filled period. Everyone is under a great deal of stress and it is not the time to be winging it and hoping for the best.


The foundation of a business is trust. Customers trust that we will follow through with a quality product or service. Suppliers and employees trust we have a valuable relationship and will fairly pay them. Trust will erode if we don’t reassure these key relationships - customers, suppliers and employees don’t remain patient for long.


We have seen too many businesses go down a bad path and years of hard work fall apart. We want to be part of stopping that cycle. If you would like to assess the strength of your emergency transition plans, drop us a line and we can discuss our Emergency Readiness tool.

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