If you've been following the news this week, there is still a lot of concern about the coronavirus, or COVID-19. Many small business owners are concerned with their finances. In last week's Freedom Friday blog, I discussed how you can manage a cash crunch in your small business through the small business loans. If you missed that article, you find it directly here:
In today's Freedom Friday blog, I want to focus on something else which is vital during this time of crisis, and that is making sure your small business has a business succession plan. The question is this, what happens with your business if something happens to you as the small business owner? This is especially important if you have “partners” who co-own the business with you, or if you are the sole owner of your business. Having a business succession plan will help answer this question, and today I want to share with you the three components of a solid business succession plan:
1. Buy-Sell Provisions in Your Operating Agreement or Bylaws
The first component of having a business succession plan is having buy-sell provisions in your operating agreement or bylaws. This is especially important if there is more than one owner of your business, but it is also essential if you are the sole owner of your business. Before I explain what buy-sell provisions are, it is important that if you have organized your business as a limited liability company (LLC) to have an operating agreement, and alternatively, if you have incorporated to have bylaws for your corporation. If you haven't organized your business into an LLC or corporation, then maybe its time to organize your business legally as an LLC or a corporation, and I would strongly encourage you to consult with an attorney regarding that process. So, if you have organized your business as an LLC or a corporation, you should have an operating agreement or bylaws. If you have more than one owner, then you need to have buy-sell provisions in your operating agreement or bylaws. Buy-sell provisions document what will happen to the company if something happens to you, or if something happens to one of your co-owners. It is very important for you to document what happens in the event of your incapacity or your death. If you are the sole owner of the company, then it is also wise to have a clause in your operating agreement as to what happens to your company if you are incapacitated or pass away. There are different options, but it is best to consult with an attorney to review those options with you in preparing an operating agreement, or bylaws for your corporation.
2. Key Man and Essential Employee Policies
The second component of having a business succession plan is having key man and/or essential employee policies as part of a policies and procedures manual. If you don't have a policies and procedures manual for your small business, then maybe this is a good time to create one, and perhaps have an attorney assist you with creating it. Your policies and procedures manual should include a “key man” policy, i.e. what happens to your small business if something happens to you as the owner; and then if you have employees, you need to include an “essential employee” policy, which is what happens in your business if something happens to one of your “essential employees.” Again, there are different options, but it is best to consult with an attorney to review those options with you in preparing your policies and procedures manual.
3. Key Man Insurance Policy
The third component of having a business succession plan is purchasing a key man insurance policy for you as the owner of your company, and also possibly purchasing coverage for key employees, such as managers and supervisors. This is an optional step and depending on the scope and size of your small business, you may or may not need or want to purchase such insurance. This is a business decision which you should make with the assistance of an insurance agent and/or your attorney. At the very least this is something you should consider to see if it makes business sense for you to purchase this type of insurance.
If your small business is needing help during this time of uncertainty and constant change, please feel free to contact me at [email protected] to schedule a free discovery call.
For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com