When you die or become permanently disabled, your business may die or be permanently disabled on the same day – not because something wrong was done, but because nothing was done! Founders and key business leaders should never think they are Superman. The truth is, they will soon die. No ifs or buts. It is just a matter of time.
The past few weeks have been extremely challenging and downright depressing. We have seen and experienced too many deaths due to COVID-19. I have been witness to the demise of several business owner friends and clients who left their families without a succession plan, therefore leaving their family businesses in turmoil. Any untimely death of a founder or a business owner can leave a business in shambles and family enterprises at any stage may struggle in the absence of their key business leader. The first 100 days are critical as estate or intestate proceedings take centerstage. But there are other dimensions that are critical as well, such as death tax liabilities, business continuity, legal ownership documentation, and the more complicated internal concerns among siblings, in-laws, offspring, and employees. These multi-dimensions can cause complications as the business is barely struggling to move from a suspended state.
In fact, many research studies have concluded that many businesses suffer long-lasting and significant negative impacts following the death of their founders. Brands associated with the founder get compromised, bank loans are restructured, and executives try to grasp for answers as sales figures dip. There may also be layoffs as the organization struggles to stay afloat. The combination of the founder’s death and the raging pandemic can be likened to a ship without sail being tossed mercilessly by a double tsunami.
In my role as a family business advisor, family businesses represent more than 60% to 70% of any founder’s total net worth. However, business owners are frequently unprepared when it comes to making sure that the business continues to be successful once they pass away. No person would willingly put more than 60% of their net worth at risk, yet this is exactly what happens to a family business with little to no plan at all.
If you are a business owner with a "do nothing" mentality, ask yourself this: If you died of the dreaded COVID-19 infection tomorrow, what would happen to your business? Would it be business as usual? Would it continue to operate and provide a long-term source of financial support for your family? Will your employees continue to manage the business? Who will make those critical decisions in your absence? Who will manage a barrage of calls from your creditors and suppliers demanding disclosure and sit-down meetings? Are your children ready to step in and assume the leadership role that you left vacant? Or would it gradually disintegrate amidst squabbling between family members and lawsuits due to poor management until the remaining assets were sold for a fraction of their original value?
As a founder, you are aware that you can manage the business fairly well and continue to be reasonably profitable. But you also recognize that your business will be compromised after your death. Sadly, despite the grim warning and possible worst-case scenarios, most business owners continue to ignore this reality and fail to develop effective transition and “what if” plans. It is difficult to imagine, especially after working so hard and then all of these questions are raised because you never planned your death or disability. In unfortunate events like this, businesses are liable to fall apart if proper planning and agreements are not in place.