The global health pandemic has taught us that in business, we must plan for the unexpected. What would happen to your business if something were to happen to you? To your business partner(s)? A key employee?
We’re not just talking about someone’s untimely demise, though you should certainly plan for that as well. Life can throw many curveballs at business owners and nonprofit leaders. Could your business continue to function, let alone thrive, if you, one of your business partners, or a key employee were temporarily unavailable?
And unless you plan to work forever, many business owners assume that they will one day sell the business to fund their retirement. But selling a business requires careful planning and preparation to increase the value of the business. It’s not something you just wake up and decide to do one day. And even when you do sell the business, a lot of work will likely go into the transition to new owners, even if you’re simply selling the business to key employees.
What is a Succession and Emergency Plan? A succession and emergency plan is a comprehensive resource designed to keep your business functioning if a key person cannot be involved in the business’s day-to-day operations for an extended period of time. For example, would others know how to step in and run payroll? Get access to online accounts? Stay on top of the to-do list? Find contact information and contracts for customers/clients and vendors/strategic partners. Follow your processes and procedures. Pay bills, issue invoices, and collect payments?
How do I begin creating a Succession and Emergency Plan for my business or nonprofit? Our business attorneys help both business owners and nonprofit leaders work through these questions and put together a comprehensive plan. We do this by:
Identifying who your successors might be and updating company agreements. In the event of your retirement, death, or disability, what should happen to your ownership interest in the business? Do you want your business to ultimately stay in the family? Transition to a key employee? Be sold to an outside buyer?
Collecting in one place all of the general information that a key person needs to know about the business, i.e., tax status, ownership/directors, and outside advisors.
Identifying where critical business records are maintained. For some clients, this might include a physical copy of documents like the operating agreement, buy-sell agreements, strategic plans, employment agreements, organization chart, insurance policies, etc. However, an electronic resource such as a shared Google doc that links to these critical business records is a much better solution. Not only is it easier to keep up to date, but it also allows the business or nonprofit to share different information with different key people depending on who really needs to know what.
Assessing where a successor would find key financial information. Where are financial statements and payroll records kept? How are these processes handled? What are the business’s billing and collections processes?
Identifying customer/client details that a successor or key person would need to be aware of to ensure continuity of service.
Identifying how a successor would gain access to critical passwords, IT resources, and even the organization’s website/social media profiles.
Working through critical disaster planning questions: What happens if a disaster prevents everyone from coming to work? How are files and computers backed up? Can critical information and resources be accessed remotely?
Asking: What else would someone need to know if you suddenly couldn’t run the business or nonprofit today?
Creating this type of comprehensive resource isn’t easy, but unless you simply don’t care what happens to your business or nonprofit, it’s work that must be done. We’ve seen firsthand what happens when business owners and nonprofit leaders fail to plan for the future: successful businesses or nonprofits close, employees lose their jobs, owners are left without a reasonable retirement plan, family fights erupt over ownership and control, etc.
Business Succession and Disaster Planning: Each plan includes an in-depth interview with the owner(s) to determine long-term goals and identify potential successors, either reviewing or updating the relevant business agreement and creating an electronic copy of the completed plan or a physical binder with the relevant documents. Depending on the business type and structure, the relevant business agreement is typically going to be the LLC Operating Agreement, which should address each member’s death or dissociation from the LLC; a shareholder agreement transferring shares upon a shareholder’s death, disability, or retirement; or a separate buy-sell agreement transferring an owner’s interest in the business upon the occurrence of specified events.
The information contained on this website is not legal advice or legal opinion and should not be relied upon. Furthermore, nothing contained in this website is intended to create or establish, and does not constitute, an attorney-client relationship.