A contingency is the occurrence of a potential (or eventual) negative event in the future. The word contingency literally means “a future event or circumstance which is possible but cannot be predicted with certainty.”
As it relates to a business, contingencies would include the death or disability of an owner or key employee, economic recession, natural disaster, cyberattack, fraud—or, as we know all too well, a pandemic.
Having a business contingency plan that covers the death or disability of the owner will help ensure that their wishes/desires are fulfilled, protect their heirs from undue financial or emotional stress, protect their assets, and ensure timely access to their assets when needed.
In our recent article, Protect Your Wealth with Contingency Planning, we talked about why developing a business contingency plan for death and disability is critically important and how the business plan must dovetail with the business owner’s personal contingency plan.
Let’s discuss some key items that your personal and business contingency plans should include.
A strong Personal Contingency Plan should include, at a minimum:
A strong Business Contingency Plan should, at a minimum:
Your spouse or key family member and ALL of your advisors should be aware of your contingency plans and should have copies in their files. All documents should be reviewed for changes annually just in case your situation changes. Do this as part of your year-end tax planning process.
Developing a contingency plan to be sure your business can operate without you will not only protect you, your family, and your business in the event that something happens to you, it will improve your company value if you decide to sell your business either internally or externally.
Every owner needs a contingency plan, regardless of age!
P.S. We also invite you to learn more about all of the business owner resources available to you at no cost at Business Transition Academy. Download a full PDF version of our book Cashing Out of Your Business – Your Last Great Deal ($17.95 value) for FREE and learn how to exit your business on your own terms and for the best price.
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