Planning for the unthinkable is never easy, even if it’s necessary.
Here’s a scenario you might not want to think about: what would happen if you didn’t — or couldn’t — show up for work tomorrow? Worse, what if you couldn’t return at all?
Who would pick up on all your incomplete tasks and see it through to the end? Who would naturally step into your shoes and inspire the confidence needed to lead your employees and customers through a tough time? Who would guide your company so that it continues to prosper?
If you couldn’t show up, would everyone know what to do and when to do it? You might even have someone in mind for succession, but do they know about your vision?
When the Unthinkable Happens
The sudden loss of a leader results in stress for both employees and clients. When this happens, it creates a vacuum in which a power struggle for leadership can occur. Some of your vital employees will soon see the writing on the wall and pursue safer, more dependable work avenues.
Your competitors may grieve for a short period; however, they will ultimately reach out to your clients — and maybe even your best employees — to offer them a new home with more reliability and perceived opportunity.
Your Contingency Plan Starts Now
So how can you alleviate this? Simple. You need to have a contingency plan for your business in case something happens to you. Ensuring continuityof leadership is critical. If there are no plans in place to address this, your business will be seriously threatened. Major turmoil and upheaval are virtually guaranteed in these situations, and many businesses often fail.
Look at it this way: the valuation of your business hinges on you being around to transition to the next leader. If that option is gone, you'll have to consider how much of that value disappears. The answer to that is dependent on the soundness and execution of your contingency plan — one that is well thought-out and updated on an annual basis.
First Things First
This stands as one of the most important pieces of advice out there and it applies here as well: good communication is critical. If you aren’t sure where to begin with a contingency plan, this is one of the best places to start.
Get input from your core employees on how you can handle the transition and what their role(s) should be. Then, once you and your team have finished planning your orderly demise, flip the script and see how your business would function if your key employee were to suddenly leave.
Remember how we talked about the short mourning process of your competitors before they move into attack mode? You can bet there will be signing bonuses and other incentives for your key employees to not only shift alliances but bring customers with them if they do.
The transition period will be a stressful time with a lot of extra work. You can lessen some of that stress by rewarding your employees through an incentive program. Aim to reward key people for keeping things on track while also retaining them to ensure ongoing business success.
Don’t Forget Family
So far we’ve covered these critical components: keeping the company on track, making sure employees know the plan and having an incentive program in place to ensure employee loyalty and customer retention. But what about your family?
Most family businesses have a disproportionate amount of their wealth tied to the business. If that business fails, the family is often financially ruined. Even if they struggle and manage to stay viable, the business is typically not able to fund the family’s cash flow like it did before.
In this situation, the best option for the family would be to sell the business at its full potential value. Sadly, that rarely happens after the departure or death of the company’s leader. A good contingency plan can go a long way to helping maintain that value. You do need to consider that most buyers in these situations will often demand a discount due to uncertainty.
You know that old saying, “Two things in life are certain: death and taxes.” Well, life insurance helps with both of these. Before you automatically dismiss the notion, look at your options, crunch the numbers and then make a business decision based on information — not emotions. Life insurance can be a cost-effective way to fund your contingency plan. Whether it be for death or disability, for yourself or for your key employees, once you look at the numbers, it almost always makes sense.
Now, go forth and plan! And don’t forget to ask for help. Your best resource is your advisory team: your accountant, lawyer and wealth advisor. Make sure at least one of them specializes in exit planning.