Have You Done a PRE-mortem On Your Business?
An unfortunate reality about our business is that we get too many calls from the families of unprepared business owners as they deal with a tragic loss. Just a few weeks ago, the brother of a business owner called us – his brother had passed away suddenly, leaving the company in turmoil.
Customers and employees were calling, and nobody was even sure where the office keys were. While we were able to assist in a collaboration with a friendly competitor to help with jobs in progress, the business value quickly eroded as potential purchasers left to find alternative suppliers. Additionally, the experience was extremely stressful for the surviving family, left to handle the wind up of the business while mourning the loss of their brother.
hile such a life event cannot be prevented, we believe there are many things a business owner can do to prepare for an untimely business exit. With proactive planning in place, an owner can prevent additional stress on the family and employees at the same time as they deal with their personal grief.
With this event recently in mind, I found a TED Talk about “prevention”. According to Dr. Daniel Levitin, Neuroscientist and author of “The Organized Mind”, everyone should be embracing the idea of a PRE-mortem. Whereas in a post-mortem, you try to figure out what WENT wrong, in a PRE-mortem you prepare for what COULD go wrong, and then develop plans and systems to either prevent these events from happening, or minimize their damage.
A simple idea, really, and one that could apply to so many aspects of our lives. But, as I can personally attest, it’s so hard to do the stuff we KNOW we should do: exercising, eating right…and planning for an exit from your business, if you’re a business owner. Why? Because the future—even the NEAR future—often seems just so far away…
Now, this topic gets our team at VEER all excited (hey, we’re accountants, don’t forget!). Working with business owners in their last few years before exit, we’re constantly preaching the importance of preparing both owners and their businesses well in advance. After all, an exit from their business is a surety (likelihood is 100% for ALL business owners). Be it a voluntary departure, or due to disability, divorce or death (sorry to be a Debbie Downer), all business owners will face at least one of these reasons for exiting.
This is where the importance of a contingency plan comes into place. Every business—be it a third-generation company or a start-up—should have a well documented contingency plan, ensuring business owners have the necessary backup in the event the unexpected happens. This plan should be in writing and should outline what actions you want taken should you become disabled or die. The plan should document items such as:
Who you want to run the business in your absence (and who you DON’T want to run the business)
Whether the business should be sold, continued or liquidated
Who your loved ones should consult with regarding a sale, continuation or liquidation
If your company should be sold, what issues were most important to you
What buyers, if any, should your loved ones make sure to contact (or make sure to avoid!)
Any other items that are important to you
Think of your contingency plan as the set of instructions that you leave your loved ones when you aren’t around to guide them. These instructions are not typically included in your will, estate plan or business plan.
Often the contingency plan is supported by disability or life insurance that will ensure your plans will have the funding they need to be carried out. The worst legacy a business owner can leave for his or her family and employees are the headaches that come with trying to wrestle with the company’s issues without the owner’s leadership and guidance.
Our team at VEER also firmly believes that businesses should be “exit ready” at all times. Regardless of an owner’s timetable to sell or transition from their business, identifying and implementing strategies to enhance sellability (including creating a contingency plan) prepares your business for a smooth (and possibly unexpected) exit. And as a bonus, these steps usually have the added benefit of increasing business value.
Developing a Contingency Plan is an important step in our Value Enhancement and Exit Readiness (VEER) Program. Contact us today for a free, no-obligation consultation to begin preparing for the unexpected.
