Not long ago two brothers I knew had a landscaping business. They told me that they had recently taken out life insurance on each other in case one of them dies so their families and business’s debts would be taken care of. One brother was against it, while the other was in favor of it. But he acquiesced. It is a good thing that he did.
A few years later, one of the brothers had a fatal accident while working. The other brother was left to run the business. He was so happy that the insurance was in place that it helped him continue the business and take care of his brother’s family to the extent that his nieces and nephew could attend college without worrying about the expense. It was due to the fact they had taken out the life insurance policy. Now that business has been taken over by the surviving brother’s son-in-law and is doing great. A second-generation business.
Think about this: if you suffer a heart attack and need time to recover, you need the ability to have other people step in and manage the business and pay the bills. Exceeding a month’s convalesce could mean that you could lose the business. A successful neighborhood fish business was being sold. The agent told me that the owner suffered a debilitating heart attack and could not return to the business. He had no insurance.
Owners of businesses should plan a “what if” scenario indicating in writing who should take over his tasks. Perhaps it is a trusted staffer, relative or friend who could sign checks and purchase orders, and have access to accounts and records. They should purchase insurance that provides money to hire someone to run the business if they become incapacitated for an extended amount of time. If there is no one running the business, vendors and customers might get nervous and discontinue their patronage. Bankers can decide to start calling in credit.
These stories should make sole proprietors and partners consider succession planning. Some owners feel that their children will take over the business. It rarely happens – children want to do their own thing. Other management options to consider are current employees, customers or competitors who would purchase your business.
Finding your replacement is difficult so plan ahead, it is best to start early. Leaders are not always easy to find and it takes time to mentor someone into a management role. You will need to identify potential successors in your family or among your employees. You can hire from outside the company, but it’s helpful to groom someone already in your business over time so the transition to new leadership will be smooth.
Planning for continuity or retirement wise. Be sure to do it!