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Unexpected but Inevitable

July 5, 2016

Death is usually unexpected for most people, but never avoidable. For business owners, being prepared for the unexpected is an important responsibility of their stewardship. The current issue of Inc. magazine provides a story of the dire consequences of being unprepared for the death of a co-owner.

In the July/August issue the first person story tells how when the Company’s co-founder (who was also her father) died, the bank loan was called, sales plummeted, the product line was destroyed, major customers bailed out, and the finances became precarious. What is not mentioned in the article is how the father’s ownership was transferred, how employees were let go and the cost of downsizing, what happened to the lease and relations with suppliers, and how the surviving owner’s routine job functions were handled when she had to step up to taking over the sales and marketing the deceased owner did. Some of these could have been avoided. For instance, a key man insurance policy on the father would have stabilized the financial front while a buy-sell agreement (which is not covered in the article) would have eased the ownership transfer.

Some that likely could not have been avoided might have been taking over the sales the father was doing, the effect of the recession on their product line, or the change in purchasing habits of customers. Businesses, particularly those that are family owned usually have tight finances and little back up for jobs the owners perform, and the death (or sudden disability) of an owner creates a huge void. Also, economic changes and buying drifts are hard to anticipate. However, preparing for what can be done such as the life insurance or the buy-sell agreement can serve to alleviate some of the pain and unpleasantness that accompanies a death permitting fuller concentration on what could not have been planned for.

Preparation is necessary before something terrible occurs, not afterwards. Do it now! Get it done!

2 Comments leave one →
  1. cparochny permalink
    July 5, 2016 2:48 pm

    Short and bitterly sweet required advice to clients. A CPA I know gives partners/ co-ventures one year to get a by-sell in place. He had a very bad experience when one wasn’t adopted and spent too much unbillable time in litigation for something that could have been avoided.

  2. 6hawthorne permalink
    July 5, 2016 7:03 pm

    Hi Ed I Think about this all the time interesting Bob Nagler

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