Why a Business Continuity Plan Needs to be Part of Your Estate Plan
If you're hoping your business will outlive your tenure there — and will provide for your family when you're gone — the time to start planning is now. The first step is to incorporate your business into your estate planning. The next step is to make sure that your estate plan includes a business continuity plan that accounts for the possibility of you becoming incapacitated — or dying.
Here's how to make a plan to keep your business afloat when you're no longer steering the ship.
What is a business continuity plan?
A business continuity plan is a document that explains the procedures to follow so a business can withstand a variety of unexpected challenges — from a natural disaster or cyber attack to the serious illness or death of an owner.
One important part of your business continuity plan is the part that focuses on who will take over your role in the business if you die or become incapable of running your business due to illness or injury. What potential issues could your business partners and your heirs could face when you're not there? And how should those issues be handled?
If you run your business with other co-owners, you should discuss this plan with your partners in advance so you all are in agreement on the plan — and so there's no surprises.
A solid business continuity plan not only prevents conflict or problems if you are suddenly unable to run the business, but it is also an asset to whoever steps in to fill your shoes. A strong business continuity plan can help keep your business stay afloat if and when the unthinkable happens.
Perhaps the most important element of your business continuity plan is a succession plan.1 Whether you are a solo entrepreneur who hopes to create a multigenerational family business or an owner with several partners, it's important to have a contingency plan for who would run the business if you cannot.
Not only is it important to discuss the plan with other owners of the business (if any), it's also crucial to talk about a succession plan with designated heirs. Who has the skills — and the desire — to run the business when you're gone? Would your partners want to simply buy out your portion of the business and continue running it on their own? Is there an employee who make an excellent owner and would like to buy out your heirs?
A business can be harmed irreparably by miscommunication and fights between managers, family members, and employees if the succession plan isn't clearly delineated and discussed ahead of time.
In addition, family members and employees may need mentoring or training to develop the skills and leadership required to continue growing your business, so it's wise to start succession planning early.
A critical part of building a succession plan is answering this question: Who do you want to run your business when you're gone?
How to create a business continuity plan
The U.S. Department of Homeland Security's business continuity plan2 template includes several steps for evaluating the impact of various risks on your business — and developing a strategy to recover from those risks.
To develop a plan that also addresses what will happen when you die or if you're suddenly unable to run your business, SCORE, a network ofbusiness mentors, suggests the following steps:3
- Create a written buy-sell agreement to protect all business partners in the event of an accident, illness, or death. A buy-sell agreement4 is a legally binding document that controls how the shares would be sold or transferred if you die or become incapacitated.
- Create a document – and keep it updated – with account numbers and contact information for resources such as lines of credit, financial accounts, vendors, customers, file sharing access, passwords, email, and social media accounts relevant to the business. In your absence, your business partners and heirs need complete access to all of these to effectively continue to manage your business.
- Consider backing your buy-sell agreement with a life insurance policy5 designed to be used by your partners to buy your share of the business from your estate if you die.
- Develop a clear succession plan. (See above.)
- Revisit the business continuity plan regularly to address changes in the business or personal life of partners, heirs, and potential successors.
With proper advance planning and appropriate documentation, your business can thrive even when you're gone and be a source of support for your heirs — whether they end up running or sell your portion and use the cash to better their futures.
Contact Synovus Private Wealth to begin your estate plan.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- Small Business Administration, “Selling a Small Business and Succession Planning for a Small Business," page 11, accessed September 22, 2020. Back
- Department of Homeland Security, "Business Continuity Plan," updated March 13, 2020, accessed September 22, 2020. Back
- SCORE, “Drafting a Will: Estate Planning for Small Business Owners," published March 6, 2019, accessed September 22, 2020. Back
- Buchanan Law Group, "The Buy-Sell Agreement," accessed September 30, 2020. Back
- Brette Sember, J.D., "Using a Life Insurance Buy-Sell Agreement to Fund Your Business," Legal Zoom, updated June 26, 2019, accessed September 30, 2020. Back
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