Could Your Company Run Without You?
Create a solid contingency plan using these strategies.
Think back to your last vacation. Remember all the preparation and planning that went into it? Now compare that to the plans you’ve made in the event that illness, disability, death or some other unforeseen circumstance keeps you from your business for a while or even permanently. Could your business run without you? A comprehensive contingency plan that delineates employees’ responsibilities, and lists contacts, passwords and other vital information, can keep operations running smoothly in your absence.
According to Nathan Sachs, founder of the Scottsdale, Ariz.-based business succession, exit and transition planning firm Blueprints for Tomorrow, many business owners neglect to leave contingency plans for their business partners and successors. In some cases, he adds, they don’t even know where to find a key to the building, much less how to run the company.
Keep a written record. Start your contingency plan by writing everything down. Clarify your employees’ roles and obligations, compile a list of important contacts and find a secure place to store passwords and banking information. Share this with your business partners, your office manager and your attorney. Next, clearly name who you owe and who owes you money and the names of anyone you normally consult with on financial matters. If you suspect that your business might become too much of a burden for others to sustain in your prolonged absence or death, outline the steps they should take to liquidate or sell the business. List any competitors that might be interested in purchasing the company. Also, list the people you trust to advise anyone representing the business on your behalf.
After you’ve outlined these instructions in writing, Sachs suggests reviewing your plan quarterly or annually with your advisers to keep everything current.
Shine the golden handcuffs. Keeping key employees on board is the next step. If employees see your absence as a red flag, they may flee as a preemptive measure. Sachs recommends incorporating a “stay put contract” into the employment packages of top employees, which requires them to stay with the company for a specified amount of time in exchange for a bonus or a temporarily inflated salary. At times, Sachs has recommended to business owners that they offer to boost the salaries of key employees by a significant percentage over a year’s time.
While that might seem costly now, Sachs urges his clients to think about how much they stand to lose if critical employees flee during the crisis mode generated by their absence. “I want that employee’s next best job to be the one they already have,” Sachs says. Of course, you should only extend an offer like this one to key employees who you absolutely can not do without, he explains.
Fluff the financial cushion. In addition to locking in key employees, make sure you have enough insurance to cover any hole left by your disability, illness or death. Although you might believe that your business and contingency plan are solid enough to carry your successors, nothing is 100% reliable.
“Don’t make anyone else’s welfare contingent upon the business still being there,” Sachs says. “I would prefer to see that if the business goes away, they’re still OK.” One of Sachs’ recent clients took out a $2 million term life insurance policy, with the mentality that if the economy deteriorates or the business becomes unsustainable, the family could close the business without worrying too much about their financial future.
Despite the consequences, Sachs says that a surprising number of small business owners have never taken the simplest precautions. And while the best-laid contingency plans are likely ones you’ll never have to use, Sachs says, “there are no guarantees.”
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