As a business owner or manager, you probably spend too much of your day making decisions regarding marketing, employee relations, inventory, hiring/firing, payroll, banking, and litigation. Yet, how much time do you devote to creating a Plan of Action that takes place in the event of your unanticipated death?
Wait!–before you move to the next article thinking this is only another boring insurance discussion–read on. In its highest and best use, insurance is designed to deal with unanticipated death; but it only provides the funding for a plan if one is in place.
That’s where Strategic Contingency Planning comes in.
What is a Strategic Contingency Plan (SCP)?
The SCP is a Plan of Action; a Plan that takes place in the event of the business owner’s unanticipated death; a Plan that is short term–for all practical purposes that means NOW!
The SCP is not a legal plan; it is not an estate plan, a will, a financial plan or even a business succession plan–although it can touch on all of those areas. It is simply a Plan developed by the business owner, usually in conjunction with his chosen co-author, that enables the owner–after death–to guide the family and their advisors on practical business and family decisions.
How does a SCP differ from my existing Wills, Trusts, Buy-Sell Agreements, and Insurance Planning?
Too often the insurance solution is simply to drop buckets of cash on the table and hope that it lasts until somebody finds a solution. Many business owners have insurance policies already in force. But, how many businesses have a written blueprint, action plan, or decision tree that others could follow in the event of your terminal absence?
Why should I have a SCP?
Although the business owner may have established appropriate wills, trusts, buy-sell agreements, and insurance planning, often the survivors or key employees lack specific instructions for “what to do within the first 48 hours?”
For example, with respect to family issues:
- Are there specific provisions for organ donations?
- Where are the wills and other important documents located?
- What funeral arrangements have previously been determined?
For a business owner:
- Where are the keys to the office/desk; who else has access to important safekeeping documents?
- Who is now in charge of the daily operations/management decisions?
- Who will notify customers/suppliers; what appointments must be canceled or kept?
What are some of the issues to address on a longer-term basis?
When the topic of an unexpected death is raised, it is ultimately important to consider family income continuation and estate liquidity. This, then, stimulates other concerns:
- Who should replace the key person; by what process is this done; how is this process funded?
- If the business is to be continued, then how will the transition in ownership take place?
- How does the business owner’s death impact established banking relationships?
- Will major suppliers continue to extend generous unsecured payment terms after the owner’s death?
- Will the business need additional working capital? From where will it come?
I really believe after my death “everything will turn out” and that people “will rise to the occasion.”
That’s great! However, try this little experiment: gather together family members and others who will be making post-death decisions. Without any advance explanation put everyone in a room and then state that you have just “died.” Give them a list of realistic business and personal issues needing decisions within the first few days after death. Remember, since you are dead you cannot speak for the rest of the meeting.
If you are like most business owners, then you will probably not be able to listen for 15 minutes without objecting to some of the decisions being made. If that is the case, then you need a SCP.
The whole idea behind a Strategic Contingency Plan is to communicate with family members and advisors on business and personal matters. It is important to pass this meaningful information along so a SCP must be in a language that is easily understood. You should insure directions in the Plan are concise and unequivocal; and wherever possible, do not leave open decisions or options for the family to resolve.
Interestingly, the short term SCP if properly done will raise other concerns which should be addressed in a long term plan–issues like ownership succession, management succession and retirement planning. Business owners generally detest confronting any loss or transfer of “power” and “decision making authority.” However, without giving any thought to these issues–and more importantly conveying these ideas to family and key employees–the image of the successful business owner’s immortality will quickly vanish.
Mr. Miller is associated with the Houston Agency of the Massachusetts Mutual Life Insurance Co. He deals extensively with independent business owners in the development and communication of Strategic Contingency Plans.