EXIT PLANNING: SUDDEN DEATH OR DISABILITY CHECK LIST – FAMILY BUSINESS

Introduction:

Discussing the uncomfortable but essential topic of the sudden death or disability of a business owner is critical, particularly for family businesses. This article outlines strategies to address such situations, emphasizing the importance of preparedness, communication, and proper planning.

The Impact of Sudden Death or Disability:

The unforeseen passing or disability of a business owner or key employee can trigger rapid decline or failure of the business. This is especially true if the individual holds critical skills, experience, or a valuable network that cannot be easily replaced. In such cases, the urgency to address the situation becomes paramount.

Effects on Family, Employees and Business:

The death or disability of a family business owner can lead to crisis, creating upheaval for both the owner’s family and employees, as concerns immediately arise regarding personal dependences on the business for financial stability and personal fulfillment. In addition, unplanned decisions made by surviving family members can negatively impact the business and its stakeholders.

The Need for an Exit Plan:

Recognizing that most business owners do not plan for their early departure, having a comprehensive exit plan in place becomes essential.  This plan involves collaboration between surviving family leaders, key advisors, and company employees. Such planning ensures the orderly continuation of the business, and harmony among family members and employees.

Navigating the Aftermath:

The course of action following a business owner’s death depends on factors such as the business type, existence of a business continuity or succession plan, and the presence of a will. Without a will, state laws dictate the distribution of remaining ownership assets.

Possible Scenarios Depending on the Structure of the Business:

1. Sole Proprietorship: In this case, the business ceases operation upon the owner’s death, with assets and debts becoming part of the owner’s estate, distributed according to the will’s terms.
2. Corporation or S Corporation: The estate becomes the new business owner.
3. Limited Liability Corporation (LLC): The LLC’s operating agreement outlines what happens upon an owner’s death. Depending on the operating agreement, the surviving owners may vote to buy out the heirs’ shares, share financial interests, or confer managerial and financial authority to heirs.

Steps for Managing the Abrupt Departure of a Business Owner or Key Employee:

1. Assess the situation and prioritize tasks.
2. Evaluate the relevance of existing exit plans.
3. Create an immediate plan if none exists.
4. Communicate progress to managers, team leaders, employees and other stakeholders.
5. Appoint a point person to lead and document the process.
6. Demonstrate care and organize in managing the situation.
7. Develop a comprehensive strategy, including short- and long-term actions.
8. Communicate clearly and frequently with employees, instilling trust and involvement.
9. Provide information about the transition of responsibilities.
10. Involve the right professionals skilled in transition management.

Conclusions:

Facing the possibility of a sudden business owner death or disability is an uncomfortable but necessary exercise. Preparedness encompassing a comprehensive exit planning, effective communication, and involving the right professionals can mitigate the impact on family, employees, other stakeholders and the business itself.  By implementing these strategies, businesses can successfully navigate these challenging situations with both resilience and stability.

About Greater Prairie Business Consulting, Inc.

Greater Prairie Business Consulting, Inc. is an award-winning, national consulting practice serving small to mid-sized privately held and family-owned businesses of any type with revenues between $1 million and $250 million.  We are certified in exit planning and have the resources to educate owners about their different exit options – options most owners and their professionals don’t even know exist – and deliver real value by utilizing advanced exit strategies to help entrepreneurs, business owners, and middle market businesses plan for their succession and maximize their exit consistent with their goals & objectives for the business.

Greater Prairie Business Consulting, Inc. can be reached by calling 1-800-828-7585 or emailing info@gpbusinesssolutions.com.