There may be nothing worse for a business than to have its owner suddenly die ó especially if it's your business.
Let's look at a hypothetical example of what can happen when an owner passes away unexpectedly.
Mr. Kentucky was the 55-year-old sole owner of a successful construction company. He hoped to sell his company to a third party in the next 18 months.
What Mr. Kentucky needed was a way to ensure that his company would survive if he died or became disabled during that period, but before he could put any plan into practice, he was killed in a traffic accident. Soon after his death, key employees left his company for jobs with more certain futures. They feared that the company might not continue without Mr. Kentucky's leadership and personal financial backing.
Their departures caused a decrease in revenues, as well as the default on a number of contracts, which exposed the company to significant liabilities. Long-time customers grew uneasy with what they perceived to be a rudderless ship and took their business to Mr. Kentucky's competitors. Mr. Kentucky's bank grew uneasy as well and decided to call in his company's debt ó debt he had personally guaranteed.
Within weeks of Mr. Kentucky's death, his key managers were gone, his company defaulted on a number of contracts, revenues plummeted, customers jumped ship and any prospects of securing replacement financing quickly disappeared.
As you can see, business continuity planning is vitally important to your company. Without a well-thought-out "survival plan," the consequences to employees, customers and most importantly, your family and estate are dire. (Don't think that your estate will escape the notice of your business creditors.)
Fortunately, there are a number of methods sole owners can implement today to help avoid this type of business collapse.
First, to keep key employees on board after your demise, offer ownership ó perhaps via a buy and sell agreement, or offer additional compensation if key employees continue to run the company. The amount of compensation can be directly tied to the company profitability and continued success. As an additional incentive, offer these employees a substantial bonus (called a "stay bonus) for staying with the company ó one that can be funded with insurance and that can be accessed in case of your death.
Second