Business owners pour their lives into their businesses. The business becomes more than just a way to earn a living. It is a way of living itself. It is often an extension of the person and their life.
If it were easy being in business, everyone would do it. However, small business is the backbone of our economy. I’ve read statistics from the US Department of Labor that more people are employed in small businesses than all the Fortune 500 businesses combined. I’ve also read that small businesses contribute more to the GDP than all the Fortune 500 companies.
So small business isn’t so small. Not for the business owner. Not for our economy.
It’s a puzzle, then, why so many small business owners don’t plan for their businesses to out live them. In an informal survey, I asked 50 business owners what their business continuity plans were. A full 45 didn’t even know what that was. The other five thought I was talking about disaster planning.
The survivors, which would include partners if there were any, of a business owner only have 3 basic choices when there is a lack of business continuity planning.
1. Liquidate the business. This is probably the most expensive option, literally costing hundreds of thousands if not millions of dollars. Those who have a financial stake in the operations loose all the future income from the business. They are also giving up much of the business’s present value.
2. Take over the business operations. One of the problems with this is that if the survivors were suited to be in the business, they would have been the business owner and not sitting on the sidelines. I’ve seen several family owned businesses run into the ground this way. This is a costly option, not only in losss of future income, and reduction in present value, but also in terms of emotional stress. If the survivors hire someone to take over the functionality of the business owner, there is the cost of that person’s salary. They probably won’t work for the same salary as the business owner. Cash flow can be a big problem here. Often times, borrowing funds is necessary, if they can be found. This adds to the expense of taking over the business.
3. Sell the business. The problem here is that it can take a long time to sell a business at full price. So to affect a quick sale, the business and its assets are often sold at a discount. Again, this is very costly, in the hundreds of thousand to even millions of dollars.
The least expensive method—by far-- of ensuring business continuity is to provide insurance on the life of the business owner(s). It comes out to less than a penny on the dollar to the other options.