🔒Protect your business from an unexpected exit

There are only two ways an owner exits a business: planned or unplanned. What happens if the unexpected occurs to you, the business owner? Most businesses are familiar with disaster recovery plans but what will happen if you, the business owner, die unexpectedly? It's not a pleasant thought, but for businesses with an owner who is still actively involved in its day-to-day operation, an unexpected absence could be disastrous without having a plan in place.

Planning requires self-reflection, disaster preparation and practical thinking. Those of us who work with business owners — lawyers, accountants, financial planners — have seen too many cases with terrible results because business owners failed to plan for the unexpected.

Here's how to begin the planning process:

1. Get real about the impact of your absence

For many business owners, the line between personal and business is constantly in flux. This makes planning for the unexpected even more important. The well-being of your family is often just as important as the well-being of your employees and the ongoing value and success of your business. You have a wealth of critical business knowledge in your head — from strategic and financial issues all the way to day-to-day operations. Spend some time reflecting upon the reality of your absence.

2. Find an adviser to help you write a disaster plan

Talk to your accountant, to your lawyer and to your financial planner. They will help you develop your disaster plan, which is often part of an integrated, planned exit strategy. It is often helpful to establish one of your advisers as the “quarterback” who has access to all aspects of your plan. But the disaster plan can also be a standalone piece if you are further away from planning your transition out of the business. When it comes to planning for an unexpected exit, this type of disaster plan cannot wait until you are thinking about retirement.

3. Make it legal

At the very minimum, your disaster plan should contain the legal element of appointing a Power of Attorney. Someone needs to be able to take every legal act that you could (access business funds, manage vendor accounts, make binding business decisions, etc.). The smaller the business is, the more critical: most small business owners are the primary business decision makers. For larger, more complex businesses, you will likely need additional legal documents.

4. Provide instructions

One of the biggest risks associated with an unexpected exit is the loss of the practical knowledge in the business owner's head. The best way to prepare such instructions is to ask yourself these questions:

• What do you want to have happen, for your business and for your family? Work with your advisers to document instructions for who should step in and do what in terms of the management of your business.

• Do my family members and employees know who my advisers are, how to contact them and are the advisers authorized to speak with the person contacting them?

• How is my plan different if my incapacity is expected to be short-term vs. indefinite?

As a business owner, you work hard to ensure the success of the business and the welfare of your family and employees. Planning for your unexpected exit (or temporary absence) will give you peace of mind and confidence that comes from knowing you have taken the first steps to protect your business and your family.

Barry L. Kohler, senior vice president and director of Androscoggin Trust and Wealth Management, is a Certified Financial Planner practitioner and a member of the Maine Bar. He has extensive experience assisting individuals and businesses with transitions and can be reached at bkohler@androscogginbank.com