Save the Business with an Emergency Succession Plan

Save the Business with an Emergency Succession Plan

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Save the Business with an Emergency Succession PlanSummer is the time for vacations.  However when you are an owner or a key employee for a small business – this may pose a risk!  What happens if you get sick or have an accident?  Is your advisory team prepared? Do you have an advisory team?  Emotions run high during this time and a written carefully thought out plan will help keep your customers, employees and vendors and maintain the value.    It is estimated that 25% to 40% of businesses who experience an emergency never recover.

An emergency succession plan is a prepared plan to address an unanticipated permanent or temporary departure of the business owner or key employee.  The plan reduces the stress and turmoil until a permanent solution can be implemented.

Here are steps to consider when drafting your emergency succession plan:

  1. Identify an alternate person to assume the leadership functions for a limited period of time. Identify the team that they may need to consult with to make decisions.
  2. Make a list of contacts, with contact information, in case of emergency. Names, addresses, e-mails and phone numbers of family members, staff, vendors, customers, lawyer, accountant, etc.    How much do you want shared?
  3. Brainstorm as to what decisions might have to be made or critical functions have to be completed. Ensure the alternate person has the legal rights to make those decisions.  Does the person need a durable Power of Attorney – financial?  Or is the person currently authorized to sign checks? Ability to sign legal documents in regard to the business such as sale document, realtor contract?  Identify who you want to be involved in those decisions.
  4. Determine if there may be any legal commitments that must be fulfilled, such as legal contracts with customers, vendors or landlord.
  5. What do you want to have happen to the business in the case of an emergency?
    • If you are sick and cannot run the business, but the final outcome is not known – how long do you want the alternative person to hold the business?
    • Hire a replacement?
    • Sell the business? If so to whom?
    • If you discussed value – define how much and if possible create a formula to calculate future sales price.
    • Have a key employee manage the business until it can be sold?
    • Work with a family member to take it over?
    • Close the business? And liquidate the assets? Or convert them to personal?
  1. Make sure the alternate person has the information needed to fulfill your plan. Such as a copy of the emergency succession plan, owner agreements, power of attorney for financial reasons, list of potential buyers, family members involved in the business, wishes on whom to gift the business to, passwords, etc.
  2. Is there an insurance policy established to replace this key employee or fund the business until it is sold? Is the business adequately insured to cover this risk?
  3. Will the alternate person get paid for implementing the emergency business plan? If so how will they get paid? Part of the insurance proceeds, part of the sale of the business?
  4. Review the plan with your management team and key advisors.
  5. Place a copy of the plan with your will or trust, along with your attorney, your personal executor, anyone you want involved in the process and absolutely with the person who will lead the process.
  6. Review your plan annually and update.

If you need assistance in drafting or reviewing this report please contact our office.  We will be happy to keep a copy in our files for you, as well as discuss it with you to enhance the effectiveness. 

Mary Guldan Lindstrom

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