My clients are mostly owner/operators of businesses. Working with these entrepreneurs, it is natural to ask, “How does this end?” That leads to working on succession and exit plans. It makes sense and it is a big part of my practice.
But what about emergency succession? I’m talking about when the owner operator has a sudden disability or death. In this case, who takes over? An internet search provides lots of information for non-profit organizations and large, publicly-held companies. In both cases, the sudden disability or death of the CEO is the responsibility of the Board of Directors. But for smaller businesses, often there is no Board. I know that with my clients, only one has a Board.
So what happens when there is an owner/operator of the business who is temporarily disabled or dies and there is no Board? There are usually family members who depend on the business for support. There are employees who will lose their jobs. There are customers or clients who expect the business to fulfill obligations. What happens when the owner/operator/CEO is suddenly incapacitated or worse?
With the internet providing no guidance, I asked other trusted advisers what they have seen. While these circumstances are rare, it does happen. In most cases, the answer is that the business fails. This is not a good result.
What most business owners would like is to have someone preserve the business until they can return, if it is a temporary disability. If the owner dies or is permanently disabled, most would want the value of the business maintained until it can be sold or otherwise transitioned to a new owner.
These intentions make sense but, without a plan, are unlikely to occur. What is clear to me is that almost no one has such a plan. To respond to this need, I have begun to create a template to create such an Emergency Succession Plan for businesses of this size. I’m just in the early stages of doing this and would welcome ideas on how to improve the process. Next week, I’ll send out my Ten Point Plan for developing an Emergency Succession Plan. Stay tuned.
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