Companies don’t plan to be in a situation where it needs to “turn the lights off” for good, but the unexpected death or disability of the owner could trigger such a scenario. In the event of your, or a partner’s, untimely death, would your company face hard choices, maybe even some form of liquidation?
Or could it continue on as a “going concern”? That is accounting parlance for describing a company that can function without threat of liquidation for the foreseeable future, usually defined as the next 12 months.
Here’s some questions to ask yourself.
- Would a spouse (or other family member) become owner and/or control company’s stock?
- Would a spouse/family member be liable for the company’s debt, including any estate taxes due?
- Does a spouse/family member lack the executive experience needed to run the company?
- Would sales likely suffer in the short run?
- Would profits likely decline?
- Would key employees think about leaving?
- Would clients think about leaving?
If you answered to yes to one or more of these questions, it could indicate a gap in your business planning if you, or your partner, were to die or become disabled.
A going concern
To help a company manage through the untimely death or disability of an owner, partner or key employee – and come out the other end as a going concern -- there are two areas where a business owner may want to focus their attention on today: having secure sources of funding for the future and building a strong management team.
Looking again at the questions above, the first three questions may be addressed by having a secure source of funding already in place. For example, a fully executed buy-sell agreement could help ensure that company ownership passes seamlessly to the surviving partner. This agreement could also help provide the deceased partner’s estate with the funds it needs to help pay its financial obligations. Business owners should also take into account any monies needed to help cover lost revenue or increased expenses that may accompany a death or disability.
The remaining four questions may be adequately addressed by the company’s employees. Does the company have a strong management team, one that can lead others through periods of difficult change? Is the company culture one where everyone will come together in trying times to provide the level of service customers expect? Is the team experienced enough so that one employee can step into the shoes of another without difficulty?
Secure funding and an experienced staff are a good start to help companies prepare to survive an unforeseen death or disability. And now is a good time for business owners to take a good look at what they already have in place and what gaps, if any, remain. Your families, employees and community are counting on your company to stay a going concern.
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