Generations Law June 2019

The Business Brief

June 2019

Crisis Succession Planning

A Troubling Tale of Two Small Businesses

For most of us, we spend our entire lives trying to make something of ourselves. We pour our hearts and our time into our businesses day after day, year after year. Then, somewhere along the way, some of the most important aspects of our journey get lost in the fray. We forget about the fragility of it all. That’s why we stress the importance of crisis succession planning to our clients. The bottom line is that crisis planning should be dealt with up front when you’re starting a business. Here at Generations Law Group, we want your business to succeed for years to come, and that means putting the proper precautions into place to ensure its prosperity if anything happens to you. Nobody wants to think about the end of life, but it’s a necessary conversation to have before it’s too late. Unfortunately, we know all too well what the results can look like if you don’t take the appropriate measures to ensure your business falls into capable hands. Every business should have two succession plans: a crisis succession strategy and an orderly succession strategy. Within the last year, we took on two cases involving business owners who died unexpectedly without ownership and management succession plans. These events put both businesses into a crisis mode. One business was able to cope with the crisis without serious financial repercussions because it had a qualified manager in place, but the other

business almost failed because it didn’t have anyone to take over management. This is why we always advise our clients to develop both types of succession plans. It’s not easy to hand over the reins — for many business owners it’s the last thing they can fathom — but you need to think about the practical future for your business. When a crisis isn’t properly accounted for, it can get messy. One of the companies mentioned above didn’t have a crisis management plan in place, and it almost resulted in the end of the company. Regarding ownership succession, neither company had a plan. Thus, under Idaho law, each business passed to the deceased owner’s heirs. One of the businesses passed to a teenager who was barely out of high school. While he showed great regret in not being able to carry on the brand, he simply didn’t have the life experience or skill set to carry on the operations. After all, he hadn’t even had a chance to go to college yet. Eventually, with a lot of hard work, we were able to help sell the business. But what this event drove home is how often this sort of thing can happen. When running the business is left to a next of kin, we can help build a management team around them so the business won’t be hung out to dry. This is not the legacy most business owners have in mind. With a proper plan in place, this can all be avoided.

The ugly truth is that an orderly succession plan doesn’t happen overnight. It typically takes anywhere from 3–8 years to get all the pieces into place and qualify the successors. You need to buckle down, have the hard conversations, and find out who is the most capable and practical for the position. The most difficult thing, even more so than an unexpected crisis, is finding out what our clients are going to do after they retire. Many small business owners haven’t really thought about life after the business. Figuring out what they’ll do every day turns out to be a real challenge in most cases. You need to have a serious talk with yourself about what the practical future of your company looks like, no matter how hard it may be . When you’re ready, we’d love to be there to lend a hand. To find out what we can do for you here at Generations Law Group, give us a call today at (208) 401-9300 or visit our website anytime at www.GenLawGroup.com.

–Tom Walker

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