Two years ago, Apple lost its founder and visionary CEO Steve Jobs. He had been terminally ill for some time, so the company had time to plan for the inevitable. A large company, Apple could spend tremendous resources plotting every scenario . . . but what about smaller businesses? How to plan for the unthinkable scenario: the death of the CEO or a critical business partner? Here are some guideposts to help navigate the very sensitive but critical process of thinking through the unthinkable.
When in the planning phase, assemble a team that includes the corporate attorney, a financial planner, an accountant, a corporate insurance agent, human resources or PEO provider and an objective business consultant or coach. Each one of these professionals will be able to objectively assess different scenarios to help your company develop the one that fits best for your team.
Businesses are a tangible, inheritable asset but most executives do not want to be in business with a partner’s spouse or surviving family member. Developing a cross-purchase agreement ahead of time creates a clear path for how the beneficiaries will be compensated for the deceased partner’s share of the business and allows the business to move forward without input from outsiders. Upon a partner’s death, when dealing with the surviving family and their attorneys, interests will be focused on getting the best deal for the survivors – not the long term health of the business like the deceased partner’s wanted.
Key person insurance will help cover the expenses of a transition and often partners buy life insurance policies on each other. The payout can fund the cross purchase agreement in the event of a partner’s death. Consider having the release of the beneficiaries life insurance benefits triggered upon the buyout to avoid a double dip by the beneficiaries. In addition, disability insurance could help supplement a temporary or permanent leader’s income while freeing up the partner’s salary in order to hire another employee until the partner is back at full strength.
At least once every two years, schedule an update of the buy/sell agreement and reassess the status of the business based on current data. If several years pass without doing this, the buy/sell agreement originally developed together may be entirely irrelevant. Has the company purchased any new assets? Or acquired new debt? Has revenue doubled or quadrupled? Because business valuations can be quite subjective depending on the valuation method, performing a business valuation and market analysis agreed upon by all partners will help mitigate any conflicting valuations upon a partner’s death.
Before an event occurs, develop a communication tree to inform all the necessary parties to a change as quickly as allowed. While there may be a communication system in place for natural disasters or to communicate changes in service, ensure that everyone is informed should there be a pending issue with a partner’s health or in the event of a partner’s death. Include employees, suppliers, contractors and, most importantly, customers. Everyone should be assured that processes have been put in place ahead of time to ensure that business will continue as “usual” as possible. The surviving partner will want to be as visible as possible to customers and employees to provide this peace of mind.
Once a death occurs, the surviving employees and partners become torn between the need to move the business forward, execute the cross purchase agreement and deal with the sheer logistics of the partner’s absence with the need to grieve a loss. While a challenge to balance the mental challenges with the emotional ones, creating the space for the team to grieve and honor the partner’s memory will help the healing process and move everyone forward. Consider naming a room or building in honor of them or participate in a charity event in their memory.
While these are some tips to help get through the sticky process of dealing with the loss of a partner, the biggest feat will be staying focused on the future. Moving forward without the other partner to lean on for advice and counsel will be the toughest part, but one rises to the occasion . . . it’s what they would have wanted.
Tammy Patterson is the CEO of CitySprint, a delivery service company specializing in medical and critical parts transport. Since 1984, CitySprint has serviced customers in Dallas, Fort Worth, Austin, San Antonio and Tyler. 1.800.Deliver
While Ms. Patterson lost her business partner earlier this year, this article is not intended to replace legal or tax advice and is not provided as such. Please consult with a lawyer or other qualified advisor to determine what best meets the needs of your business.
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