Studying the CMC website, you will have noticed a series of pieces on the impact of sickness and death on any business. Many business owners have an innate sense that they are immortal and only start thinking about succession plans when close to retirement.
But what happens when 'retirement' comes early - through death or sickness? The advice to take out 'Keyman Insurance' is sound, but only gives limited breathing space - papering over the cracks. Here are some examples of the heavy impact of sad events:
- When researching a business prospect recently, I found that two board members were 'Will Trustees' for the estate of the departed owner's wife. They will naturally represent the interests of their client and may pressurise for changes at the wrong time. Likewise, a client of mine - following the untimely death of his business partner - was pressurised to wind up the business so that the estate could be removed from risk as guarantors of an outstanding bank loan.
- The opening website page of another business prospect is taken up with the death of the business owner in June 2013 aged 56. His son (age 39) has taken over. Who's to say if he had been adequately prepared or indeed if he was up to the task? The fact that the website still majors on the death of his father six months later is not encouraging. Surely the emphasis should by now have switched to promoting his own skills and experience?
- Ill health recently compelled one of my clients to sell and retire early at precisely the wrong moment in the economic cycle. In the event we helped him secure the best deal and the business is in good hands, receiving timely investment. But they got a bargain - conservative estimates suggest that the sale value achieved was at least 33% less than what should have been possible in a year or so on the back of an economic recovery.
- And then there is my own business experience. My father was joint-MD of a family business (confectionery: winegums) and it had been agreed that I would spend at least seven years outside the business garnering valuable experience before joining. Sadly, my father died aged 49. My great-uncle as Chairman offered me the chance to come in immediately, after a six months crash-course at Henley Management College, becoing MD at the age of 24! With regret but without hesitation, I turned it down knowing that it was the right decision both for myself and for the Company, which was eventually taken over by Cadburys. My father's death left a managerial hole that rendered the company vulnerable to takeover (since the family shareholding was very low and non-controlling).
It is vital for any business to consider carefully the consequences of such disasters as part of their long-term strategic planning. Otherwise exit values will be poor; and 'Keyman Insurance' will not cover that.