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Business Resource Center

When disaster strikes, will your company be prepared?
By Michael Gould

When a couple was recently killed in an avalanche, repercussions of the storm blew south and east. The 47-year-old man owned three small businesses in the southeast, one of which was in the process of being sold.

Obviously, this was a terrible personal tragedy. But it also speaks very strongly to the need for small business owners to prepare for such possibilities. In the case of the deceased couple, the situation was especially difficult because the owner's wife was the bookkeeper for the businesses. Like most small business owners, the husband kept many of the details of the businesses in his head. Key business decisions needed to be made after his death, and a dearth of information was available to help make them.

Additionally, the owner had two non-active partners, and no shareholder or buy/sell agreements existed. A number of other impending business decisions also needed to be made, not the least of which was consummation of the sale of one of the businesses.

While the businesses had managers in place to run the day-to-day activities, they weren't prepared to make critical decisions. There was a demand for a CEO-type who understood the financial implications and possessed the necessary experience.

Whether it's a feeling of immortality or simply an inability to get past the daily grind, small business owners often fail to deal with the "what if" question. Every small business owner needs to devise a disaster plan that takes into account the fact that he or she may not be there to run the business tomorrow. Such a plan should include the following:

  • A well-defined succession plan. This means putting in place a "designated hitter" to take over should you die suddenly. It must be someone who understands the business, not just your spouse or executor.
  • Agreements written as legal documents, or at least as "side" letters. Handshake agreements do not suffice. You must physically write down agreements, as well as the status of ongoing negotiations regarding such issues as partnership/shareholder agreements, buy/sell agreements, personal loans, landlord discussions, etc. Otherwise, it may come down to your word against someone else's.
  • A plan regarding the future direction of the business. If you have been discussing bringing an employee on board as a partner, expanding your operation, merging with another company, adding a new product, revising the marketing plan or any other major strategic move, write this down so your vision can be carried out by your successor.
  • Accounting and bookkeeping records maintained in an orderly fashion. These records need to be organized in such a way that they can be easily understood by your accountant.
  • Good human resource records. This means updating files regularly on employee salaries, reviews, job performances, promotions, job descriptions, etc.

This particular businessman took none of these steps. Yet, quick action by the executrix in bringing in my associates and me has kept the businesses ticking, and they seem to be in far better shape now than several months ago - although the professional cost to the estate has been significant. This is a price that could have largely been avoided.


Michael Gould, CPA, is a partner and small business expert with the accounting and business advisory firm of Mintz Rosenfeld & Company LLC, in Fairfield, NJ.

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