If you’re 55, there’s a 10% chance that you’ll die within the next ten years. Put another way, one out of ten business owners who are 55 will leave their businesses behind in the next ten years.
How prepared are those businesses to deal with not having their current owner? In most cases, not very prepared. A recent study by insurance company MassMutual found that only half of business owners say they have a succession plan in place. Many of those with a plan haven’t thought it through very well, because half of them haven’t even informed the chosen successor that they’ve been chosen. What happens if they say no thanks?
Only half of companies have a buy-sell agreement in place that keeps the business protected from unintended ownership changes when the current owner experiences death, disability or a divorce.
To deal with this, MassMutual recommends business owners ask “If I died 90 days ago, what would my business be worth today?” Unfortunately, for many businesses, the answer to this question is “a small fraction of its current value.” Determining how your business would fare requires some serious thought. It also requires some tax and probate considerations that require input from a business planning professional.
There are plenty of signs that your business would suffer during an unexpected change in ownership. Here are three signs that you’re better prepared than most.
You leave town regularly – and your employees handle things without you.
Imagine yourself on a week-long vacation in your favorite place. If one of the first things that comes to your mind is “How will my business fare while I’m gone?”, that’s a bad sign for your business’s survivability.
You can never know how your business would run without you until it runs without you. That’s just one of many reasons it’s important for business owners to take some time off. If you haven’t been away from your business for that long before, it’s an opportunity to plan who will take over sensitive tasks when you aren’t there to do it. Ideally, you’ll get to a point where even an unannounced absence will be handled well.
The business’s most important relationships aren’t owned only by you.
Excellent process documentation can help save a business after an owner passes away – but running a successful business takes more than just great processes. In most industries, relationships matter tremendously. If a business’s owner is also the sole owner of relationships with critical vendors and customers, there’s no process in the world that can transition those relationships to a new principal. One of the most important parts of a succession plan is for the new business leader to already know the key industry players personally.
You aren’t a single point of failure for any critical tasks.
Anytime you’re doing a recurring business task, ask yourself if anyone else knows how to do it. If they don’t, it’s safe to assume that the task will be done incorrectly the first few times you aren’t there to do it. It’s also likely to be done late.
How big of a deal is this? For some tasks, it’s not that big of a deal. But if nobody knows how to run payroll except for you, you’re exposing your company to tremendous risk should something happen to you. Make sure that you aren’t the first and only option for any tasks that are critical to the future success of your company.
To learn how WingSwept can help improve your technology through better planning and processes, call us at 919-779-0954 or email us at Team_WingSwept@WingSwept.com.