A contingency is the occurrence of a potential (or eventual) negative event in the future. The word contingency literally means “a future event or circumstance which is possible but cannot be predicted with certainty.”
As it relates to a business, contingencies would include the death or disability of an owner or key employee, economic recession, natural disaster, cyberattack, fraud—or, as we know all too well, a pandemic.
Having a business contingency plan that covers the death or disability of the owner will help ensure that their wishes/desires are fulfilled, protect their heirs from undue financial or emotional stress, protect their assets, and ensure timely access to their assets when needed.
Let’s discuss some key items that your personal and business contingency plans should include.
A strong Personal Contingency Plan should include, at a minimum:
• Location of all important documents.
• Names of advisors who can assist – financial, estate, insurance, etc.
• Insurance policy details.
• Passwords and access instructions for all financial, insurance, and social media accounts.
A strong Business Contingency Plan should, at a minimum:
• Detail the owner’s goals and wishes for who will own the business in the future.
• Identify who should manage the business in the owner’s absence.
• Names of advisors who can assist the family and employees.
• List of potential internal and/or external buyers if the company should be sold.
• Include all of the details for life insurance and disability policies.
• Detail other key, confidential information and assets including bank accounts, safety deposit boxes, and passwords to access your accounts.
• List the location of all important business documents.
• Reference an executed shareholder or “buy-sell agreement” if there is more than one owner.
• Determine who can access liquid assets in the event of an emergency.
Your spouse or key family member and ALL of your advisors should be aware of your contingency plans and should have copies in their files. All documents should be reviewed for changes annually just in case your situation changes. Do this as part of your year-end tax planning process.
Developing a contingency plan to be sure your business can operate without you will not only protect you, your family, and your business in the event that something happens to you, it will improve your company value if you decide to sell your business either internally or externally.
Every owner needs a contingency plan, regardless of age! Contact us today for a Free 30 minute confidential consultation to get started.
Material discussed in this communication is provided by Business Transaction Academy. Advisory services offered through Commonwealth Financial Network®, a Registered Investment Adviser. Financial and exit planning services offered through Alliance Private Wealth LLC are separate and unrelated to Commonwealth.