Death plans

guest commentary by David Potts

A few days ago one of my neighbors died. He was just 2 to 3 years older than me and he owned a small business. His death is a tragedy and any thought about what will happen to his business, his customers and any employees, should be secondary compared to the grief and loss suffered by his family.

But it doesn’t change the fact that someone will have to decide what now happens to the business. Will the business continue? Will it shut down? At a time like this there can be great uncertainty among employees, customers, and vendors as to the future of the business. And somebody, a wife, a parent, a trusted friend will have the burden of sorting things out.

This stimulated my wife’s thinking and she asked, “What am I supposed to do if you die?” My first thought was to tell her, “We have life insurance. Collect the insurance and go celebrate!” But the reality of the grief and loss next door stifled my attempt to humor her. Reflection and planning seems the proper response. So small business owners let me ask you a question. Have you planned your death? Will your family praise you for your forethought or be angry that you left them in a terrible situation?

When there’s an unexpected death, there is first a feeling of disbelief, shock. That last thing anyone wants to think about is business. Unfortunately, you may be dead but the rest of the world has to go on. After the shock of your death wears off, anxiety for your family, customers and employees will set in. Your business is generally one of your largest assets. One way to protect this asset is to have a plan for the disposition, dissolution, or continuation of your business upon your death.

What factors should you consider in creating your plan? I won’t attempt to list all the important factors since I’m sure I don’t know them all, but first I would plan to quickly eliminate, as much as possible, the uncertainty that everybody is sure to feel.

• First, who would be in charge?
This, I think, is the most important and difficult decision as the person in charge can make any day-to-day decisions that are required to keep the business operating smoothly. I would select somebody who knows your business or at least your industry. This could be a retired friend, a trusted employee, or a family member. A business without an ultimate decision maker would soon flounder.

After you decide on a person to be in charge of the business, make sure they agree to accept this position. Instruct this person on what you expect them to do and how to accomplish your wish. Do you want the business sold? Dissolved? Continued as a going concern? Keep this person in the loop. Also, it would be smart to compensate them accordingly if and when you die, even if they are family members.

After your successor accepts his new position make sure he has authority to carry out your instructions after you’re gone. This doesn’t mean giving him carte blanche to all the company’s checking accounts and company’s assets without oversight. Your wife, son, daughter, or whoever administrates your estate should oversee what is happening in the business. It does mean you should eliminate obstacles that might prevent his success.

• What should be communicated to your employees?
Remember employees aren’t working out of the kindness of their hearts. They are trying to make a living for themselves and their family. They need to be reassured that they still have a job, at least for the time being. If the plan is to wind down your business you might plan to offer your key employees generous severance packages if they stay until the end, if the business can afford it. If it is your plan for the business to continue, tell them so. Communicate to you employees what to expect so they feel secure and don’t flock out the door.

• What should be communicated to your customers or clients?
If your business is capable of continuing without you, have your successor send a letter to all your customers and clients stating that you will be missed but the great customer service that was given under your watch will continue into the future. If you are an attorney in the middle of litigation on behalf of your client and you die, a letter instructing the client where to pick up his file may be all that is needed. I’m not the expert on your business. You are. You will have to decide what type of communication and course of action is appropriate. The point is you should think through the possibilities.

• What should be communicated to your banker?
If you owe the bank money, remember their main concern is getting paid back. You don’t get to tell them what you are going to do. You need to discuss with your banker what would happen upon your death. You need to consider how they’re going to get paid in an orderly fashion. This is where you may reconsider your life insurance needs.

I think I have my own unexpected death planned, but I am going to review the plan. I hope the plan is wasted effort. There really isn’t a book or checklist that will give you all the answers or the perfect plan. Everyone’s business is different. Everyone’s family is different. If you are smart enough to succeed in business you are smart enough to create a workable plan. But it would be wise to talk to people who are invested in your business. If would be helpful to talk to your family, your employees, your banker to learn their point of view.

If you own a small business and you die and expectedly without a plan your family may be too busy cleaning up your mess to grieve your death. What you will leave behind is uncertainty, fear, and dread for your family, customers, employee, and other stakeholders in your business. You are the expert on your business. You are the best person to plan what happens to your business when you die. Don’t just think about it. Just do it. Plan your unexpected death for family’s sake. Hopefully it will be just a big waste of time.

David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

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