As a reminder, this blog series is based on The Seven Step Exit Planning Process created by the Business Enterprise Institute (BEI).
Throughout the course of this blog series, we’ve covered some important exit planning steps, such as business valuation and setting exit objectives. However, situations arise that we aren’t able to plan for.
So how do you prepare your exit plan? One word … continuity.
Business continuity planning, in its most basic sense, prepares the business owner and all related parties for unforeseen circumstances impacting the business. Events such as death of an owner or a disability are often covered in continuity planning. Continuity planning communicates the owner’s wishes regarding the continuity of the business in writing. You should also ensure it includes both short term and long term plans.
Here are a few questions to consider when starting to think about continuity planning:
- Do you have a plan for your business if the unexpected were to happen to you?
- Who can operate and control your business and financials if you’re gone?
- Do your employees, specifically senior management employees, know of your plans?
While you might think it’s slightly morbid to think about, remember how important this is. Take a moment to think through these questions and then begin to draft your continuity plan based on the answers.
Here are BEI’s top five recommendations for content in a continuity plan:
- Extra Pay for the Extra Mile| The stay bonus plan emphasizes how critical it is for certain employees to remain with the business after your departure. Start with figuring out which employees these are and how much they’ll make for sticking around. From there, a bonus amount can be determined. The stay bonus gives these awesome employees an incentive to stick around with the business rather than jumping ship…but with a great business like yours, they’ll probably want to stay no matter what.
- Handing Off the Baton|This recommendation covers the terms of ownership transfer when the time comes. It allows remaining employees and/or co-owners to make the right move when transferring ownership. In other words, it makes sure all your hard work is being handled correctly. It may also include exceptions to the terms, such as transfers to family or other employees of the company in the event of an unexpected death or disability.
- Where’d the Money Go?| This recommendation covers what steps need to be taken in the event financial resources are no longer available to support the business. In this part of the plan, it is common to summarize the financial support of the company, such as leases, loans and lines of credits. The financials of your business can also include possible solutions in the event commonly used financial resources are no longer available.
- Back to the Basics| The continuity instructions cover the basic aspects of the plan on a written or electronic instruction form the owner can complete, sign and store with all other important personal planning documents. It is important to frequently review this to ensure everything is updated to match any recent changes. The instructions should include the desired future of the company which covers sale and transfer of the business. Not sure on who you want your business to go to? Check out these blogs for guidance on making this choice. In addition to who the business will be sold to, the instructions may also contain the desired price for the business, including a general price range and an absolute minimum sale price. Important information is often found in the instructions, such as important dates and deadlines and other information not easily obtained. Think of this as a game plan with all the directions clearly explained.
- Salary Summary| The last recommendation summarizes the plans to pay salary or compensation to the owner and the value that can be expected on departure for the business. This can include events that would trigger such payments, payment amounts and termination of payments.
Although there may be other important information to consider depending on your own unique business, these five recommendations are a good starting point for business continuity planning.
Just like all other aspects of life, change is constant and it impacts us and our business whether we are ready or not. Continuity planning helps you be prepared for these changes so your business can continue to be successful after your departure.