The Essential Elements of a Business Contingency Plan

It’s Critical to Have an Exit Plan: But Unforeseen Disability or Untimely Death Contingencies Need to Be in Place Too. Here’s What to Consider

Have you ever dreamed of selling your business and retiring to pursue a lifelong passion or hobby? Hopefully, that will happen. But, let’s face it. Life is unpredictable.

There is no guarantee that you will live to see tomorrow’s sunrise. So, it’s important that you prepare for the least desirable exit option of all: the possibility of your death or disability before you have the chance to exit your business on your terms. Having a contingency plan in place provides the necessary backup in the event the unexpected happens.  This plan should be in writing and should outline what actions you want taken should you become disabled or die. The plan should document items such as:

1. Who you want to run the business in your absence
2. Whether the business should be sold, continued, or liquidated
3. Whom  your loved ones should consult regarding a sale, continuation, or  liquidation
4. If your company should be sold, what issues were most important to you
5. What buyers, if any, should your loved ones contact or  avoid
6. Any other items that are important to you.

Think of your contingency plan as the set of instructions that you leave your loved ones when you aren’t around to guide them.  These instructions are not typically included in your will, estate plan, or business plan.

Often the contingency plan is supported by disability or life insurance that will ensure your plans will have the funding they need to be carried out. The worst legacy a business owner can leave for his or her family and employees are the headaches that come with trying to wrestle with the company’s issues without the owner’s leadership and guidance.

Odds are you will exit your business in the best of scenarios since you’ve got an exit plan, but isn’t it better to be prepared for “just in case?” Call it a contingency, call it expecting the unexpected.   Call it what ever you want, just be smart—be prepared.

Richard Jackim, JD, MBA, CEPA, is president of the Exit Planning Institute.  He is an experienced attorney and investment banker. He received his law degree with honors from Cornell Law School and his MBA in Corporate Finance and Marketing at The Kellogg Graduate School of Management. Rjackim@exit-planning-institute.org