What happened in Vegas isn't staying in Vegas this time. At the Vision 21 meeting, attendees were told that it's simply smart business to have a contingency plan in place should anything call us away from the demands of the business. There was noticeable squirming in the room as these considerations are never comfortable to contemplate.
The message, however, is important and, now that I've been around the block a few times, it finally stuck with me. Though LMT is all about business continuation and how to do that as successfully as possible, we understand the need to give time and attention to the "what ifs." In fact, the message was delivered again--by a different speaker--last month at LMT's LAB DAY East. There, Dick Yemm, CFP, First Asset Consultants and author of the series Tomorrow, Your Business Without You: The Stories and Plan Design Tomorrow: Contingency/Succession Planning for the Small Business Owner, shared some compelling reasons why planning for the unexpected is not for the back burner.
Using real life case studies from his own archives of experience, Yemm shared instances in which families were torn apart by the sudden death or incapacitation of the bread winner.
He noted that it's especially difficult when tragedy strikes a business owner whose share of the business represents exactly 50 percent of a partnership. "A 50/50 split, rather than a 49/51 percent split or better, is never a good idea. In times of dissolution, even splits almost always cause trouble," he says, "because any decisions your partner makes will now require your beneficiary's full consent and agreement and vice versa."
The best way to avoid additional hardship and emotional distress for your family is to prepare for the "what ifs." "First on the list is to have in place a Durable Power of Attorney and an Operating Plan: a document describing how to run your business," says Yemm.
Then, make sure family members know where to find it along with all the information they would need to either continue the laboratory's operation or prepare it for sale.
"They need to know where to locate critical financial and legal documents: your will, letters of instruction, trust documents, deeds, leases, insurance policies, contracts, bank statements, bills, accounts receivable, most recent tax returns and passwords to your databases and financial accounts."
Spouses were invited to attend Yemm's program so they, too, could hear firsthand what they would need to do if you are suddenly out of the picture. His Five-Step Business Action Plan for spouses/surviving family members includes:
A brief shut down of the laboratory, as soon as possible, to allow time to take inventory and secure the laboratory's valuables.
Gather all critical documents.
Contact professional advisors.
Meet with the laboratory staff.
Identify and contact key clients.
Yemm's manner was so "matter of fact" that the usual lump that forms in my throat during any such conversations remained at bay as I gave the topic my full attention. "Do you have a plan?" he asked attendees. Interestingly, one lab owner felt his laboratory had no value so there was no need to plan. "What about the value of your equipment, your materials, your clients?" Yemm asked.
"Do you have a successor in mind?" Yemm advised that each of us needs to decide what we would want our spouses to do with the business if we became incapacitated. These decisions should be written and include a clearly outlined management plan for a successor, spelling out how to handle finances (so it's fair to surviving family members) or express a preference for selling the laboratory instead and, if possible, to which potential people or groups.
"If you don't do this," Yemm said, "think about who wins and who loses. Attorneys make out well if you don't think about how you're going to get out of the business at the same time you started it--or, at least with the same level of care."
He noted that some people assume their management team can continue running the business with the family member remaining uninvolved, as an absentee owner. But he cautioned that this becomes very difficult over time: "Even with the most trusted and experienced employees to carry the business forward," Yemm said most families find selling the business to be their best option after trying to make it work for two or three years.
Then there are all kinds of taxes and financial obligations, from capital gains, gift and estate taxes to business debts and transactions costs for business transfer that come into play. In a lot of ways, he quipped, "it's almost easier to start a business than to end it!"
I hear you Dick, I said, after a riveting two hours. I hope you--my fellow business owners--do, too!
Dick Yemm may be contacted for additional information at 800-646-1281 or email email@example.com.