As a business owner, you’re likely the most important person in your business. You’re probably the breadwinner for your family. Your employees rely on your leadership and success for their livelihood. A lot of people depend on you.
What would happen if, without warning, you were to die or become incapable of running the business?
Many business owners might answer that question by saying, “I have a Buy-Sell Agreement” (a written agreement that controls what happens to your shareholding following certain events, such as death or incapacitation).
If you own a successful business, a Buy-Sell might not be enough. Experience shows that Buy-Sell Agreements only dictate to whom business ownership would transfer. They often don’t provide enough guidance to family members, the new owners, or employees about how to handle all of the responsibilities you once had.
For example, if you were to die, would your family know what to do about any personal guarantees you provided in connection with your business? Would the person who took over your business know how to work with your important clients?
Without preparation, sudden death or incapacitation can wreak havoc on the plans you make for the future of your business, along with the plans your family and employees have. But by planning for an untimely death or incapacitation, you can position your business, family, and employees to thrive without you.
Consider how one owner, Vic Heidelberg, did just that.
Vic Heidelberg’s Story
Vic Heidelberg’s company, Heidelberg Flooring, was amid a business boom. As the face of the company, Vic was preparing to open Heidelberg Flooring’s eighth location. On the day the new location was to open, Vic failed to show up for work. A few hours passed before Glen, Heidelberg Flooring’s Sales Manager, received a call from Vic’s wife, Judy.
Judy told Glen that she was leaving the hospital. Vic had suffered a stroke in his sleep and had died just an hour ago. Glen was stunned, both because Vic seemed to be in such good health and because he had no idea what Heidelberg Flooring would do without him.
“Expect a call from someone named Bronwyn,” Judy said to Glen. “That’s one of Vic’s advisors.” Later that day, Bronwyn called Glen to discuss the situation.
“Vic did a very good job of planning.” Bronwyn said. “In fact, he and I worked on a plan to protect against something like this. It formed part of his Personal Transition Plan.”
Bronwyn explained that Vic left instructions about who would take over certain responsibilities in the event of her death. Glen would take over as interim CEO, and Heidelberg Flooring’s Operations Manager, Gary, would take full control over operations leadership. Each received a 25% salary bump to reflect their new responsibilities.
“Vic also left a list of key clients and prospects, and how he recommends you speak with them about various issues, as well as contact information for key advisors who he thought could help you make any tough decisions”, Bronwyn said. “We can meet tomorrow, and I can go over everything with you.”
Over the next few days, Heidelberg Flooring used the instructions that Vic provided to Bronwyn to announce Vic’s death to clients, prospects, employees, and vendors. Because Vic had planned for his unexpected death, the company’s clients and vendors were assured that Glen and Gary would provide the same service and timely payment they’d always expected.
Glen proceeded to secure business with three of the biggest prospects Vic had been working on by using Vic’s notes and suggestions he’d left behind. Two years after Vic’s death, the business had grown in value by $1.5 million. The company thrived, even without Vic, because he left everyone with detailed instructions about what to do if he were to leave the company unexpectedly.
And Vic’s family also made it through the experience pretty well. With help from his advisors, Vic had created a salary continuation plan to protect his wife – a freelance film critic—and four university-aged children. When paired with his life insurance money, Vic’s family didn’t see a change in their lifestyle.
Because he had transferred business responsibilities to two of his key employees, his family had minimal stress about the business. Glen and Gary ended up purchasing Vic’s ownership interest over the next five years, using the company’s increasing cash flow to fund an incremental buyout over time. The sale proceeds, plus Vic’s investments, allowed Vic’s wife to lead the family through what might have otherwise been a very difficult financial situation and his children to finish university debt-free.
In short, Vic’s business, family, and employees all continued to move forward despite his untimely death, all because he left detailed instructions and plans for how the business would continue without him.
The Real Statistics
It’s a common misconception that owners think they will have total control over when they leave their business. Unfortunately, statistics show that 50% of owners are wrong and don’t get that choice due to the “5 D’s of Despair: –
1. Death
2. Disability
3. Divorce
4. Disagreement (with business shareholders)
5. Distress (financial or mental)
Vic was wise enough to consider and protect the ones he really cared about. He not only planned but actioned for the unexpected. His legacy lives on because of that proactive approach.
How proactive are you when it comes to protecting what you really care about?
The information contained in this article is general in nature and is not legal, tax or financial advice. Contact a lawyer or a tax or financial professional for information regarding your particular situation. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. Clients should consult their legal, accounting, tax or financial professional in specific cases. This article is not intended to give advice or represent our firm as qualified to advise on all areas of professional services. Master Planning 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 you need.
Any examples provided are for illustrative purposes only. Examples may include fictitious names and may not represent any particular person or entity. This article has been sourced from a licence agreement with Business Enterprise Institute, Inc.
