What would happen to your business, your clients and the value of the company, if something where to happen to you suddenly? Do you have a plan and systems in place to ensure your business will carry on until you return? Or, a plan to ensure the business continues under someone else’s leadership if you cannot return?
These are questions small business owners should ask themselves and develop answers for. As a small business owner, much of your time and wealth is probably tied-up in your business, so having a plan to ensure you can extract the value for your family and that your business can continue is important. Life insurance and disability insurance (short or long-term) is a great place to start and can help protect your income, but it does not solve your family or estates question regarding what to do with the business in your absence. Unless someone in your family is already active in the industry and ready to step in, there is a good chance that the value of the business will effectively become zero if there is no written plan in place. Here are the steps and best practices for ensuring you have protected your business and its value, compliantly:
Step 1. Find the right party to back you up or to purchase the business should something happen. This person is often a peer/competitor, family member or someone within your organization (i.e., a junior partner).
Step 2. Create a bona fide agreement with your chosen party before something happens. This is a FINRA requirement per NASD IM-2420-2 for an unlicensed spouse or estate to receive payments involving securities revenue. Your agreement should contain:
Step 3. Communicate the plan to all of your key stakeholders. Tell your clients, staff, family, CPA, and attorney. Make sure you have written communication to ensure that your wishes are made.
Step 4. Send a copy of your plan to your broker-dealer/custodian.
Step 5. Review/update your plan and valuation on an annual basis. This will help ensure that your plan is up-to-date, compliant, and applicable at all times should it ever be called upon in your absence. A documented track-record of your businesses value and performance will be invaluable should any questions arise and can help with a variety of business issues (obtaining insurance, securing business lines of credit, litigation/divorce support, employee ownership, etc.)