As a business owner, are you prepared for the unexpected? Whether it is a serious illness, incapacity, accident, or untimely death, will your business be able to continue on without you? Not sure? Then, you need a contingency plan.
Contingency planning is a risk management strategy that should be part of every business plan. A contingency plan helps you and your colleagues prepare for and respond to an emergency situation. Owners who do not have a contingency plan run the risk that their largest asset - their business - will not be protected if they become incapacitated. This places them, their business, and everyone around them in great peril. Every owner needs a contingency plan, regardless of age. Let’s discuss what contingency planning is and some of the basics you should include.
Your contingency plan will: ensure that your wishes/desires are fulfilled, protect your heirs from undue financial or emotional stress, protect your assets, and ensure timely access to your assets when needed. It should cover both personal as well as business needs as we describe below.
A strong Personal Contingency Plan should include, at a minimum:
- Location of all important documents including:
- Health Care Proxy
- Durable Power of Attorney
- Trust Documents
- Tax Returns
- Financial Plans
- Names of advisors who can assist – financial, estate, insurance, etc.
- Insurance policy details
- Passwords and access instructions for all financial, insurance and social media accounts
A strong Business Contingency Plan should include, at a minimum:
- An outline of ALL business owner wishes including who should own and run the business
- Names of advisors who can assist – CPA, attorney, business broker, business transition specialist, etc.
- List of potential internal and/or external buyers if the company should be sold
- Insurance policy details
- Location of all important business documents such as Corporate Records and Operating Agreements, Shareholder (Buy/Sell) Agreement, Business Ownership Transition Plan, Financial Statements, Tax Returns
Your spouse or key family member and ALL of your advisors should be aware of your contingency plans and your legal advisors should have copies in their files. All documents should be reviewed for changes annually just in case your situation has changed. 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. Don’t let another year go by without having your plans in place. It’s the best gift you could give to everyone around you this holiday season!