Plan ahead for business longevity

I’ve been thinking about this question the past few weeks after a friend told me this story. My friend received a call from a lady who was asking for help with her husband’s small business. Her husband had unexpectedly passed away. She had no idea where any records were or what she needed to do to keep the business open. The company that her husband had put his heart and soul into and thought would be a sustaining asset for his family, in reality became nothing more then a job that quit paying upon his death.

Business owners often focus on the survival and growth of their businesses, but what about the most traumatic event that could happen to your business – your incapacity or untimely death?

The principles in this article apply not only to small-business owners but also to any key person in an organization. So, again, if something happened to you, what would happen to your business? Or, maybe more importantly, what would happen to your family? The plan to protect your business and family must start immediately.

The cash factor

The first item to consider is who other than you has access to your business checking account. Limited access to cash is a normal financial control but can also become a liability in the untimely loss of the owner. Regardless of the type of business, cash access is very important. There will be bills to pay and payrolls to meet. There will be business cash needs. Someone you trust should be a signatory on the account and be able to handle all the cash needs of the business in your absence. This may be your spouse or someone else. The person you choose for this very important task should also know where the checks, bank statements and other financial documents are located. You should also have a list of all your bank names, account numbers, contact people and phone numbers for all accounts. If you have online access or automatic debits, this person also should have access to this information. This is the most important step to consider. Regardless of what ultimately happens to your business, cash is the most important immediate concern.

Planning the next phase

You also need to determine what you would like to happen to your business if you become disabled or die. Structured correctly, a business can provide ongoing income for your family, or it can be an asset to be sold. But it is vitally important to think about this and plan for either option.

If your intention is to have your business continue in your absence, then several issues need to be addressed, such as who will perform the tasks that you handle. The importance of this issue will depend upon your type of business. The person chosen should be someone to whom customers and clients will be receptive, and if there is business debt, it will need to be an arrangement that sits well with lenders. If your preference is to sell your business, you will want to have your attorney draft a buy-sell agreement. A buy-sell agreement or purchase agreement will spell out the terms, price and what occurrences will trigger a purchase of your business. In most cases, a buy-sell agreement is most valuable when you have a partner or employee that would buy your business. The wording and method of valuation is very important for any buy-sell agreement. Make sure your accountant also reviews this document to help minimize any tax consequences.

Documentation

All of your financial records, business and personal, including accounting, financial statements, insurance policies, customer lists and vendor or major service providers should be easily accessible. Regardless if you intend to continue your business or sell it, these documents are vitally important and will save whoever is handling your affairs an enormous amount of time and frustration attempting to find these records.

Even though you may not be sure what you want for your business, it is important that you take the time to protect probably your most valuable asset. None of these steps are difficult and none will require a great deal of time to implement. A little thought and planning will ensure your wishes and family are taken care of in the unfortunate event that something happens to you. Make a decision now to protect your business in the future.

Ted A. Smith, CPA, is the owner of Ted Smith & Associates PC, a Springfield-based accounting firm.