3.12.17 – Don’t let your business die with you

Nobody wants to be morbid and dwell on death, but being a business owner comes with responsibilities. Therefore, every business owner really ought to put some thought into what would happen if they die.

Succession planning remains an unfashionable niche of business management: statistics suggest that up to two thirds of Australian business don’t even have a plan in place for the owner’s retirement.

While it’s great that most SME owners love their businesses so much they don’t want to consider giving them up, this is taking things too far: at some point, you need to hand over to the new generation and enjoy some well earned rest and recreation.

Having a long term business succession plan for your retirement will also help to guide a business in the right direction if you pop your clogs early. But it’s not enough – unfortunately, death has a number of disadvantages in business as well as socially!

Death is only the start of your business problems

To be serious for a moment, let’s consider some of the people affected if a business owner dies: if he or she has partners in a business, it can create huge financing problems if there is no succession plan in place; the owner’s family or other beneficiaries may struggle to know what to do with the enterprise they have suddenly inherited; and of course, employees will be seriously worried for their jobs.

In the case of business partners and family, many issues can arise around ownership stakes, valuations, and the need to raise cash to pay off other beneficiaries of an estate – and of course, the taxman. These can be disastrous for an unprepared business. However, issues are foreseen, life insurance can often be used to cover any necessary shortfalls in financing.

As for employees, their main concern is likely to be that the enterprise remains healthy, operational and trading. Of course, some business owners choose to leave their creation to their loyal staff – but that certainly requires real planning and suitable legal advice.

It’s worth remembering, also, that ownership and management are not the same thing: if you’re leaving a business to a five-year-old child, it might be an idea to also appoint a capable manager who knows the business.

Death is easier with healthy business financing

The better shape your business is in financially, the easier things will be for your successors when you hand things over – one way or another…

Specifically, business debts such as unsecured loans and traditional bank loans can be a real problem. The sting is usually in the dreaded ‘personal guarantee’. In Australia, even business debts described as ‘unsecured’ usually come with onerous small print giving rights to the lender to seize assets and call in the debt – you guessed it – if you die.

They will probably do so even if the borrower is up to date with their repayments.

Even if the debt is fully owned by and secured against the business, an owner’s death is likely to be considered a material change in circumstances and the debts may be called in. That is often fatal – for the business.

One way to be better prepared for anything the future might throw at you or your enterprise is to run your business in a way that is less reliant on traditional borrowing models for its funding. The various ways in which flexible invoice discounting can help make your business healthier, and cash flow better managed, are discussed at length on tim’s website and many of our blogs.

The key thing to remember with regards to business planning is that selling an invoice to tim. isn’t debt: tim. will only take the money when the invoice is paid – it’s so easy, you don’t even need to be alive to see it done!