Don’t Let the Sudden Loss of a Founder Kill the Company

Many small businesses are closely identified with the founder or founders who have operated them for many years.  This is especially true when it is a solo founder who is also the very public face of the company.

 

This identity may also be fatal to the company if the founder suddenly dies or is severely incapacitated. Stakeholders such customers, suppliers, lenders and key employees may all decide to cease doing business with a company they perceive as being out of business.

 

Having a Management Continuity Plan will go a long way toward preventing one disaster from turning into a series of them.

 

Elements of a Management Continuity Plan include:

 

  1. 1. An Operating Agreement among the owners of the company. This is especially important if the business is a Limited Liability Company (even a single-member LLC). The Operating Agreement helps the owners (and successors) think through how they want to manage the company before and after a major event.

 

  1. 2. A Buy-Sell Agreement among the owners of the company. This is a vehicle for assigning a fair valuation to an owner’s equity, as well as one for placing restrictions on when, how and to whom the owners may sell their equity.

 

  1. 3. A Succession Plan that identifies all of the key positions in the company and the likely successors for each key position. Creating this plan often identifies any holes in the company’s talent roster and triggers a recruiting effort.

 

The Succession Plan should also list all of the company’s key relationships and identify the people in the organization who will need to become the primary contacts for the key relationships.  Now would be a good time to introduce those people to the outsiders. It will soften the blow if tragic event takes place.

 

  1. 4. An Emergency Communication Plan. This plan helps the business prepare in advance (i) the messages that the company will want to communicate to its stakeholders, and (ii) the messengers for each stakeholder group.

 

An added benefit of all this planning is that the company will be more attractive acquisition target. It communicates to potential buyers that the business is prepared to function after the founders depart.

 

We enjoy helping owners create such plans. Give us a call!

 

Stuart Blake

Mobile – (949) 842-9379

sblake@innovacounsel.com

 

Michael Oswald

Mobile – 208.914.3086

moswald@innovacounsel.com

 

www.innovacounsel.com

 

© 2017 InnovaCounsel

Be Sociable, Share!

Leave a Reply

Your email address will not be published. Required fields are marked *