Many business owners support the lifestyles of their family, employees, and others they care aboutby means ofrunning a successful business. Usually, those business ownersdon’tanticipatedying or becoming incapacitated before they are ready to leave their businesses.
While an unexpected death or incapacitation may not be entirely in your control, there are ways to regain control over the uncontrollable.Let’slook at a fictional but representative scenario in which two business owners took different paths to addressing an unexpected problem with their ability to run the business.
Now What?
Mavis Burns and Miguel Sanchez were longtime business partners. Mavis was meticulous about documentation, while Miguel often improvised his planning based on thesituationhe found himself in. For years, these equal but opposite approaches had brought their companygreat successand theirfamiliesgreat wealth.
That was before Mavis and Miguel were both killed in a car crash while driving to close the largest deal in company history.
Mavis and Miguel had both purchased life insurance policies that would help support their business and their families in case something like this ever happened. When their families approached theirAdvisor Teams, they had vastly different experiences with accessing the money that they were due.
Mavis had worked closely with herAdvisor Teamto document every step of what her family and direct reports should do if she were ever unable to run the business. Her plans outlined exactly who should take over her business responsibilities, explained to her family precisely what her life insurance policy said, and provided instructions for how her family could access the funds from her life insurance policy.
Though Miguel told his family that he had a life insurance policy, he was the only one who knew where it was, what it said, and what steps his family should take if he were ever to die.
The Difference It Made
Having worked with Miguel her entire professional life, Mavis hadanticipatedthat Miguel may not have been as meticulous in his documentation as she was. She took an extra step by including pertinent information about Miguel’s life insurance policy to help make it easier for Miguel’s family to receive funds from the policy.
However, Migueldidn’thave a plan for what would happen to his side of the business if he were ever to be removed from it unexpectedly, such as by an unexpected death.
As a result, Mavis’s hand-picked business successors did not know what Miguel wanted to have happen to his side of the business. Since their obligation was to the success of the business, they backfilled his role and reorganized his side of the business in ways that would allow the business to thrive.
Mavis’s estate continued to reap the benefits of the business’success thanks to her meticulous documentation and formal, written plansregardingher stake in the business following her death.
Though Miguel’s family was able toeventuallyaccess life insurance funds, there was no documentation about what to do with his stake in the business. This meant that Miguel’s family got the life insurance funds and nothing more. This also meant that Miguel’s side of the business was now effectively run by Mavis’s hand-picked successors. And like Mavis, they did business differently than Miguel, which createdchangethat Miguel’s team was not expecting.
What Happened Next
An unexpected event that results in a business owner’s death or permanent incapacitation is often outside of our control. What is in your control, as a business owner, is creating written documentation that addresses an unexpected event like death or incapacitation.
The consequences of having a documented plan can produce positive results for your business, family, and employees if something unexpectedwereto happen to you. On the other hand, not having such documentation can leave your family, legacy, and wealth to the whims of someone whose goals, obligations, and needs may not align with what you would have done if you were still in control.
In the case of Mavis and Miguel, Mavis’s team did the best they could with the information they hadin light ofthe obligations they had tothebusiness’success. Unfortunately, what was best for the business after the death of Mavis and Miguel was not necessarily what was best for Miguel’s family and employees.
If Miguel had taken steps to document his wishes, as Mavis did, it may have been less difficult for his family and employees to navigate hisuntimely death.
Retaking Control
As a successful business owner, youlikely havenumerouspeople relying on you tomaintaintheir lifestyles. Youlikely havegoals and ambitions that others may not know about, such as providing financial security for your family despite whether you live or die.
A potentially powerful strategy for retaking control over the uncontrollable is throughclear, written documentation.
AprofessionalAdvisor Teamcan help youdeterminewhat you need to do to protect your business, family, and employees in the face of an unexpected event that prevents you from running your business. This often takes the form ofBusiness Continuity Instructions, which provide guidance to your advisors, business partners, family members, and employees about what to do if you were ever unable to run your business any longer.
As an example,Business Continuity Instructionsmay include guidance about the followingimportant factorsof your business ownership:
Who takes charge in your absence
How your family can access fundsafteran unexpected event such as death or incapacitation
What employees and managers can do to best position the business for success without you at the helm
How family members and business successors can access important accounts, such as bank and credit info and passwords
In short,it’stypically better to have a plan and not need it than to need a plan and not have it.
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The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Business Enterprise Institute, Inc. is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
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