As a business owner, you likely have the management process well in hand. Still, unforeseen and sudden changes can devastate your company if proper precautions are not put into place. For instance, you may find yourself in the middle of a divorce or dealing with a disagreement between yourself and your business partner. Death and disability are also changes that can create upheaval in management. While these are currently hypothetical for you, there have been many cases in which a spouse has demanded 50% of a business during a separation, leaving the owner with garnished wages until the legal obligations are met. Similarly, a business owner may have to hire a temporary replacement while recovering from an injury or illness, drawing from funds intended for other business-related expenses. Worse still, the sudden passing of a business owner can leave a family behind that isn’t well versed in running the company, forcing it to be quickly sold under market value for the economic survival of their spouse and children.
Each of these circumstances heavily impacts the bottom line of a business and can result in closed doors and unrealized potential or lingering after-effects that take years to balance.
Now that you are aware of the potential issues, you can begin protecting your business. It would be best to create a plan of succession that covers the most prevalent possibilities while still allowing enough flexibility for extenuating circumstances. Your plan will be contingent on the size of your business and the existence of prospective successors. For instance, if you run a small company without an employee fit for the job, you might need to look towards family members and vice versa. If you are not the sole owner, you’ll need to sit down and come to an agreement with any business partners so that the plan of succession isn’t contested, holding up operations during a management crisis. It might be in the best interest of your company to bring in a third-party assessor familiar with this process to help your company create a plan that is straightforward and easy to enact.
Once the plan is in place, you will need to ensure your company has the proper funding. This can include a life insurance policy for yourself, a partner, or a key employee and a business overhead policy to cover costs for temporary replacements when one or all of the above cannot work.
If you are currently generating a successor plan and would like a professional assessment, we at Stratos Private Wealth have years of experience working with business owners such as yourself to build a solid strategy to reconcile potential circumstances concerning unexpected management problems. Please reach out with any questions you may have, and consider us a part of your team.
Investment advice offered through Stratos Wealth Partners, Ltd., a Registered Investment Advisor DBA Brown Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.