The Chairman’s View: Do You Have Contingency Plans?
by R. Thomas Stocker
Suddenly it happens. Judgment Day. Are Succession planning is something every
you ready for it? It comes in many shapes business needs regardless of lifecycle. If
and forms. Some you can control, others you remember in my last article “Are You
you can not. But regardless, will your an Octopus?” I discussed the tendency of an
business survive? The way you want it to? octopus to be alone in all decisions large or
small. Succession planning is the farthest
If you’ve been diligent about planning, the thing from that owner’s mind. But what if
answer is probably yes. But if not, maybe. something happens to you? Will your
I’m not talking about fires, floods, ice business be able to survive? Is your spouse
storms or any of the other countless natural equipped to jump in and lead? Is it fair to
disasters that can affect one business or an them? Are there key employees who are
entire region of businesses. I’m talking involved with your overall strategy,
about personal planning. execution and familiar with the financial,
sales, operations and marketing plans? If
One big area of surprise is business not, your legacy will most likely be a closed
valuation. Many owners are legends in their business with little value.
own minds. They have an unreasonable
view of their business’s value. Everyone Another subject I hear over and over is buy
would love to have a business worth 10x. and sell agreements among partners. It
WOW! But what if it’s really only worth 1x doesn’t matter if your partner only owns a
or 2x or asset value? Have you been small piece of the business, owns most or
providing your wealth manager with 50%. Do you have a buy & sell agreement?
realistic valuations? How do you know? And if you do, do you review it at least
Unless your wealth manager gets annually? Is it funded? If you say no, you
independent verification, they will use your are not alone. I find it more common that
estimate to make all those cool projections small and even mid-size businesses either
for your retirement income…and don’t have them, they aren’t funded or they
statistically, your business represents 80% of are seriously out of date. So answer this
your net worth. Projections that predict you question; if your partner were to pass, are
can retire very comfortably, and fulfill you comfortable being partners with their
everything you have dreamed about. So, if spouse? Their children? How about their
you’ve been using a 5x multiple all those estate or probate lawyer? Because without a
years when your business is really only buy & sell agreement, that’s who you will
worth 2x, surprise! What do you do? be a partner with.
Maybe you can forego retirement for a few
more years, maybe you retire poor, maybe Do you care you have to sell the business to
you don’t retire. Perhaps you or your meet the terms of the buy & sell? If it hasn’t
spouse’s health will determine that for you. been funded, you lost your gamble. You
Bottom line, you should get a valuation of outlived your partner. Now you need to pay
your business done every few years, their estate. How will you do that? Term
certainly no longer than five. life insurance is a very reasonable way to
10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com

keep your business. Check out the terms of an estate planner to protect assets, figuring
your buy & sell. Make sure it is funded! out a tax strategy to minimize estate taxes,
business interruption insurance, long-term
If you have an out-of-date agreement and care, key-person insurance polices and
you pass, how do you feel about having your countless other things you may be “to busy
estate receiving cents on the dollar? What to do right now”. You know where they are.
happens to your heirs? You were counting Keep in mind you are mortal. Myths such as
on the value of your business to provide for “that will never happen to me”, “I’ll do that
them. Send your grandkids to college. You tomorrow”, “I’ll get to that some other
and your partner built your business time”, “that’s not important right now”, and
together. It’s very valuable. But because many others all deserve a little thought.
you died first, your estate didn’t get its fair You need to prepare. You may need
share. Pity. It doesn’t take long to review insurance, you certainly need a contingency
and adjust these agreements to make sure plan for those “what ifs” others may have to
they reflect your business’s current value. deal with. It’s not fair to those who are left
Fifteen years ago you couldn’t have to clean up the mess. It is certainly not the
envisioned how much success you have legacy you had in mind when your business
attained today. Check and adjust it became successful. You pay attention to all
annually! the little details in your day-to-day
operation. Personal contingency plans
There are many other examples and areas deserve and need attention as well. It is
you need to concentrate or at least spend a your duty to face and address them sooner
little time and effort on to ensure your rather than later. Don’t leave it to your heirs
legacy is a thriving business. Things like to deal with a mess they don’t deserve.
updating your will, producing a will, seeing
To comment on this or other topics important to private business owners, access The Chairman’s
View blog at www.thechairmansview.blogspot.com.
About the author; Tom is a Principal of Boardroom Advisory Group, LLC, an owner advisory and consulting firm. Tom serves on the Board of
Directors for the RI Economic Development Corp’s Small Business Loan Fund Corporation (SBLFC), the finance arm of the RI EDC. He writes
a blog called The Chairman’s View (www.thechairmansview.blogspot.com) and a monthly article for the RI EDC’s Every Company Counts
initiative. His articles focus on areas that can add significant value for business owners.
Boardroom Advisory Group, LLC specializes in helping business owners and CEOs with business planning strategies, operational execution,
growth and profitability enhancement, cash flow, process and structure changes, metrics and dashboard creation and transition planning. Contact
Tom Stocker, 401-451-9799 or tstocker@boardroomadvisorygroup.com. For more information about how we can help you build a more valuable
business visit our website at www.boardroomadvisorygroup.com . All registered trademarks mentioned in this document are the property of their
respective owners.
©2008-09 Boardroom Advisory Group, LLC All Rights Reserved. No part of this document may be reproduced without the express permission
of the author.
Additional articles written by Mr. Stocker include:
I’m Out of Compliance. Now What?
Are you in a Foxhole?
Are You an Octopus?
What is Value?
Do You Have Contingency Plans?
Have You Thought About Your Future Lately?
Metrics Should Be Everywhere (Part I)
Metrics Should Be Everywhere (Part II)
It’s All About Growth
These articles can be accessed at www.slideshare.net/tomstocker. You can also request Tom to add you to his email list to receive his latest
articles on a monthly basis. Contact Tom at tstocker@boardroomadvisorygroup.com.