Should You Have a Business Continuation Plan?

Operating a family business presents a myriad of challenges.  Here’s one that is frequently overlooked. In a family business, one individual typically manages and controls though his or her roles as majority shareholder, chief executive officer, and chairman of the board.  Is this your situation?

This works…until something goes wrong.   Should you die or become disabled, particularly in the absence of a family member successor, it may be desirable to sell rather than rely on outside professional managers. 

 Selling may be problematic.  To obtain an appropriate and fair price, your business must be able to sustain profitable operations over time…all the more challenging in a weak economy absent your talents, energy, and financial backing.

 Is this starting to sound even more familiar?

 The best way to protect your family is to have in place a formal and comprehensive business continuation plan…one that can be immediately implemented upon your death or disability.  The primary purpose of this plan is to help ensure that your business continues to profitably operate until it can be sold at a time and price that will allow your family to realize its full and proper value. 

 Not sure if you need a business continuation plan?  Consider the following questions:

  •  If you become incapacitated, who will have the authority to immediately vote your shares?
  • Who will have the authority to immediately vote your shares after your death?
  • Who is best suited to exercise voting control over the longer term…without compromising the beneficial rights of your family?
  • How is your board structured?  Outside directors?  Advisory board?
  • How should your board be structured following your disability or death? 
  • How will new directors be elected?  Who will serve as chairman?
  • In the event of your disability or death, who should succeed you as CEO? 
  • What will his or her compensation be?  Since you have an ownership interest and may be willing to accept a smaller salary, don’t assume that it should be the same as yours.
  • What incentives are in place to retain key managers and other valuable specialists?  Their retention is critical to maintaining long-term financial and operational viability.
  • Will your death accelerate debt obligations or otherwise create complications due to personal guarantees?
  • Will your death trigger certain clauses in contracts (i.e. change of control or material adverse condition)?
  • How will your death impact the cash needs of your business?  Your family?

 These questions merely scratch the surface.  If you don’t know or are not comfortable with the answers, you need to seriously consider creating and adopting a business continuation plan.

 Good News #1:  Business continuation planning is an opportunity to control your future and protect your family.

 Good News #2:  Greater Madison has a number of excellent attorneys and other professionals who specialize in this type of planning.

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