How to Protect Your Business with a Succession Plan

Have you considered what will happen to your business once you pass away? Death is the one experience every owner has in common and one of the most important reasons why your business needs a succession plan.

Failing to plan for your death, even though it may seem morbid, could send shockwaves through the lives of the people you care about, your business, and your legacy.

Consider an example — what happened to a fictional (but representative) business owner. We’ll call him Darnel Peters.

Darnel’s Story

Darnel Peters (our fictional business owner) had everything he’d ever wanted — a large, loving family and no obvious health problems (save an occasional twinge in his back that he chalked up to an active lifestyle and aging body). He also owned a locally-renowned logistics company that continued to grow.

When he went to see the doctor for a routine checkup and learned he had Stage 4 pancreatic cancer, life changed instantly for Darnel. He was given approximately 12 months to live if he committed to aggressive chemotherapy.

Darnel was put in an impossible position. He was torn between spending as much time as possible with his family and getting his business affairs in order because his family’s lifestyle relied entirely on him.

Darnel’s business success was primarily because of him. He had good managers but no one who could run the business in his absence. He’d only just started thinking about converting his sole proprietorship into an S corporation on the advice of his advisors. In addition, his post-retirement plan was also non-existent because he figured he wouldn’t leave for another 20 years.

Darnel died nine months after his diagnosis, and his advisor team could not find anyone to take the reins of his business. And when potential buyers examined the business, they saw it had relied entirely on Darnel’s presence for sales success.

Ultimately, the business was sold at a low point of $1.5 million. That, plus a $2 million life insurance policy, helped Darnel’s family survive financially following his death, albeit not at the same lifestyle they were accustomed to. But, unfortunately, his business and employees were hit hard. The buyer stripped the company of its book of business and laid off 95 percent of the workforce.

More Reasons Why Your Business Needs a Succession Plan

Although Darnel’s story is fictional, unfortunately, it is not that uncommon. Had Darnel planned accordingly, his family and employees would not have been negatively affected.

With a succession plan in place, if an owner dies or is incapacitated, a business can continue to operate with new leadership that is passed on to an employee or group of employees.

Death isn’t the only life event that can impact your business. A serious illness or accident may occur, or some other unforeseen event can completely derail it.

That’s why succession planning is so important. It can be easy to forget about prioritizing this when busy with day-to-day operations. But it’s as critical as the insurance you buy to protect your business in the event of a disaster or the security systems you install to defend against theft.

A business that relies on just one person will often die with them. A solid succession plan can help avoid that situation.

Let’s Connect

At True North Mergers & Acquisitions, we help business owners identify and prioritize their objectives for their businesses, employees, and families. If you’re ready to talk about your goals for the future and get insights for achieving them, we’d be happy to sit down and talk with you. Contact us today.