A common tragedy for business owners is facing a life-changing event, such as a sudden death or illness that devastates the business, without a plan. While these events may seem uncontrollable in the moment, the good news is that with foresight and planning, you can regain control over what seems uncontrollable.
Let’s look at a short fictional but representative account to see the different consequences between proactive vs. reactive planning.
He Was Gone Before He Was Gone
Geoff Starr and his father, Bud, thought they had planned for everything. They survived lockdowns, supply-chain interruptions, and several weather events that had put their competitors on the brink of failure.
But recently, Geoff noticed that Bud’s decision-making seemed off. Bud was often agitated and mean, which was out of character for him. He had trouble remembering long-time clients and, on several occasions, mixed up major client orders that Geoff only caught at the last minute.
Bud refused to see a doctor and demanded that he remain in charge of his business responsibilities. His newfound meanness had driven important managers to the point of quitting.
After his wife found him shivering on their patio in the dead of winter, he was rushed to the hospital to be treated for hypothermia.
Over the next few months, Bud’s doctors confirmed he was suffering from dementia.
Geoff realized that he needed to transfer Bud’s ownership in the business so the business could continue to operate and provide Bud and his family the financial support they needed for his care.
Sadly, Bud’s Buy-Sell Agreement indicated that a transfer of ownership could execute only at his death.
Being Ready Before You Need to Be
It’s common for business owners to create Buy-Sell Agreements early in the business and never update them again. This is what happened to the Starrs.
An outdated Buy-Sell Agreement can have unintended consequences. In Geoff’s case, there was nothing he could do with his father’s ownership until his father died, which defeated the purpose.
What could the Starrs have done differently, and what might you do to avoid a fate like this?
1. Create a Business Continuity Plan
A Business Continuity Plan gives your family, your business, and your advisors guidance about what they should do if an unexpected event occurs.
For instance, your Business Continuity Plan can offer strategies for first contacts and actions to take following the owner’s unexpected departure, use of proceeds schedules, and management responsibilities.
Providing guidance when you can’t actually provide it yourself can bring relief to your family and those who rely on you.
2. Retain Key Employees
When something happens to a business owner, it can cause key employees to worry or consider leaving. In Bud’s case, his managers became so fed up with his meanness that they considered quitting. This could have horrible consequences for the Starrs, because without the business running at full steam, Bud’s care may decline.
To stay in control in this regard, you might consider establishing Stay Bonuses in your business planning. Stay Bonuses incentivize key employees (often financially) to stay at the business following unexpected events that affect the business owner.
It’s often true that your company will need to be financially strong to offer Stay Bonuses. By strengthening your company to allow for this scenario before you need to, you may find opportunities that benefit your company even if nothing ever happens to you.
3. Avoid Assuming it Won’t Happen to You
No one wants to think about bad things happening to them. It’s difficult and scary to be sure. While you don’t need to dwell on everything that could go wrong, it’s important to be reasonably prepared for things that may go wrong.
You might even use the idea of an unfortunate event befalling you as motivation to control it as much as possible. Planning to address events that are realistic and potentially harmful to your company can introduce you to the strategies to overcome them, which, in turn, could further strengthen your business.
Conclusion
Controlling the uncontrollable parts of ownership is more attainable with a plan.
We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their families. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience.
Imagine a world where your financial advisor, attorney, accountant, insurance specialist, and property/casualty advisor all worked together, like a board of directors on your behalf. This is the type of Collaborative Advisory Team approach we take in our practice. For many driven entrepreneurs, executives, and high-net-worth individuals, a Collaborative Advisory Team of professionals is the most effective and efficient way to achieve your optimal financial world. At Moneta, we’re reinventing the way you experience wealth management.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm. We appreciate your interest.
Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
© 2024 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.
Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
The Chartered Advisor for Senior Living (CASL®) designation is conferred by The American College of Financial Services.
©2020 Business Enterprise Institute, Inc. All rights reserved.
