So there you are, the centre of your business universe. You have bred your beloved business from conception to succes and understandably your business has become your little baby. As the case with most parents, you know your ‘business baby’ inside and out- you know its movements, you know when it needs sleep, food or just a little extra attention, and most importantly, you know that you are ultimately responsible for ensuring its survival. So what happens when you are no longer around to look after your little bundle of joy? Undoubtedly, you will have made provisions for your children in the event of your death, however, what provisions have you made for your business baby?
“Can my business survive my death?” – It’s a strange thought but a reality as business owner. There are too many businesses that die with their founders when in truth is, they need not.
What are you doing to ensure that your business can survive your death and keep delivering for all those people who depend on it for their livelihoods?
Here are a few tips that may help your business survive:
• Business Size – This is an important factor as businesses that are solely dependent on the owner have less chance of surviving that those who have several staff and professional managers. Therefore, the bigger your business the better chance it has to survive.
• Succession Plan – Does your business have one? You might want to begin handing over many of the day to day functions to key staff in anticipation of letting go? If you’re a one man band, you can begin informal discussions with another professional to purchase your client base after you have passed on. Regardless of the route you choose, it is important to document your plan, so the transition is as painless as possible.
• Family – Will your family be taking over the business or will the plan call for the sale of your shares? This is an important aspect to consider and will depend on each person’s individual circumstances.
• Funding – This is probably the most important factor to take into account and will change several times as each of the factors mentioned above are debated. What is important though, is to ensure that your family and your business have sufficient funding to survive.
As it generally always comes down to money (how much of it and when it’s available), I’ll focus on this point a little longer. Fortunately there are insurance products available in the market place that can take a lot of pain out of the planning.
• Outright Sale – In your succession planning, you might have concluded a sale agreement with a friendly competitor that came into effect on your death. Here it would be quite simple, they would pay your estate for the purchase of the business.
• Key Man Insurance – If you have competent management and your family or business partner plans to keep the business running, it would be advisable to consider key man insurance. It’s an insurance product that pays out money to the company to enable it to purchase replacement skills (i.e. yours). This additional cash injection should tide the company over until the new employee I able to “fill your shoes”.
• Buy and Sell Agreement – this is a common insurance product used in a business with more than one shareholder. It is often used in conjunction with key man insurance but need not be. The real focus of this product is to enable the surviving shareholders to purchase your shares, thereby putting money in the hands of your family and essentially preventing their future participation in the business.
So as you can see, there is a lot to consider, when planning for your unplanned exit ☺
At Phezulu we do more than just assist our clients with setting up their succession plans, we are your “one stop SME shop”, assisting with everything from Accounting, Business Management, BEE, Consulting, Company Registration to Payroll and Mentoring.
For more information please visit our website www.phezulu.net or give me a call 010 003 8558