An unexpected and untimely death is a business challenge that most business owners don’t want to talk about. Even fewer like to plan for this inevitable outcome, especially younger owners who don’t plan to die anytime soon. According to BEI’s 2022 Business Owner Survey, a significant percentage of owners say that the largest obstacle to Exit Planning is that they believe it’s too early and not necessary yet.
While it’s also reported in the survey that a larger number of young owners are considering planning than ever before, it’s unlikely that many are concerned about death or disability. Though it may seem morbid, it is critical for owners to plan for their death well before they’re ready. Failing to do so could majorly disrupt the lives of the people they care about, their businesses, and their legacy.
What Happens Without a Succession Plan?
As an Exit Planning Advisor knows, an essential function of an Exit Plan is to dictate the next steps after the owner dies or becomes disabled. However, it’s often challenging to convince these owners, especially younger owners, that a succession plan must be a high-priority issue.
It’s important to share with your clients the various ways a business can quickly spiral into chaos without a plan in place. Consider a few of the following pitfalls:
- Loss of direction – If there are no succession plans in place or any form of business continuity instructions, there may be a power struggle or confusion over who needs to take over responsibilities. This problem of delegating tasks can cause a halt in business growth, ultimately leading to a hold on business goals and an increased potential for rushed decision-making. Spoiler alert: Just go watch the last season of Succession!
- Loss of Employees – In the midst of chaos, owners run the risk of losing valuable employees who jump ship due to a lack of clarity and direction. Additionally, a company facing succession struggles might have trouble attracting potential new hires and filling leadership positions.
- Loss of owner’s knowledge – When the owner is the only person in the company who has knowledge of the business, its operations, its customers, its partnerships, etc.,the business likely isn’t in a position to run without them. With such heavy reliance on the owner, it is hard to manage succession challenges that come with an unexpected death, especially if none of the knowledge and processes are documented.
- Loss of customers – With any change, the turmoil that comes with a sudden death or disability can increase the risk of losing customers and partners. If employees leave or management shifts, the level of service could suffer, leaving the business vulnerable to customers jumping ship.
How to Reduce Risks
While it can be a lofty and challenging task, your job as an Exit Planning Advisor is to make your clients aware of the risks of failing to plan, and encourage them to start a succession plan as early as possible.
Death can come unexpectedly and destroy their life’s work. When the goal of an Exit Plan is to protect that important work, you must help your clients mitigate the risks that an unexpected death can bring by utilizing the following tactics:
- Find out what is important to the owners. Asking your client what matters to them most gets to the root of their values-based goals. The first step of planning for a successful future is determining the post-exit goals that will ultimately guide the Exit Plan.
- Start planning even if it seems it’s too early. Time is one of the most powerful weapons in planning. However, it’s also limited and difficult to gauge how much time an owner has left. Consider urging your clients to start with an estate plan and a business continuity plan in writing to get the ball rolling.
- Become inconsequential. A business that relies heavily on the owner often dies with them. Help your clients commit to training employees or hiring next-level management that can run the business in the owner’s absence.
- Build something of intrinsic value. As advised in a recent article by Business News Daily,mitigating the risks that come with an untimely death include taking steps to improve business value. “If a business is to survive a founder’s death, it must have intrinsic value beyond what they brought,” the article noted. “If a founder wants their business to outlast them, they must create something worthy that others are motivated to own and continue.”
- Document all processes and relevant provisions. It should go without saying that documentation is key in preparing for the worst case scenario. As an Exit Planning Advisor, getting your clients to start planning in small ways such as process documentation can be the motivation they need to continue down the Exit Planning path.
The Bottom Line
A business owner’s unexpected death will almost certainly have negative consequences for a company. The prospect of dying without a plan in place can be scary. However, if the business and the owner are able to establish a succession plan and take the necessary actions to prepare, it can cushion the impact.