If you wish to avoid potential disagreements, mishandling and even the collapse of business after your death, you need to pay attention to this article.
Here's a real life case study - the Swatow Restaurants.
The Swatow Restaurant chain had 18 restaurants. When it closed down, it created the loss of more than 500 jobs. The owner of the restaurant, Mr Yan bought over the Swatow restaurant in 1988. His sudden death in Japan after suffering a stroke caused chaos in the Singapore operations in Singapore. Business came to a stand still - no money was coming in to Singapore to fund the operations and pay the suppliers. His wife came to Singapore to settle the company's messy affairs. As a tai-tai living the high life, she had no clue about the business and its operations. Her presence was of no help and she returned to Japan. What was worse was that the Changi airport location which was making money was not allowed to continue business as it was Mr Yang who had signed on the lease.
This headline story was a great learning lesson but many small businesses still have not taken heed. More suffered the same fate as Swatow restaurants. The failures could have been averted or the financial impact reduced if the business owners had put in place a business succession plan.
Business succession planning is also referred to as Business Continuation Planning. It is the process of:
- transfer of ownership of a business or
- the sale and purchase of a business or
- a change in management or change in control of business and
- it is done either during the lifetime or upon the death of outgoing business owner (s)
Why plan now? Can't I plan when the time comes?
Reasons for Business Succession Planning
- to ensure that business will be transferred smoothly with stability and certainty and for transfer of ownership and business control with as little hassle as possible
- to provide for contingencies
- to prevent interruption while changes are occurring, whether in ownership of the business or buy-outs
- to shorten the time taken to clear estate duty as the value of the deceased's shares is pre-determined; this should be incorporate together with a buy-sell agreement
- to protect the business from forced liquidation in the event of the business owner's death or total and permanent disability or critical illness
- enhances the overall worth of a business and protects its business value
As a business owner who have worked hard to build the business and got it to where it is today, would you let it just die or would you want it to survive after you?
Wouldn't you want your loved ones to benefit from it should you not be around for them any more?
You buy insurance to protect yourself and your loved ones. What about your business? It needs protection as well - you need to manage the risks!
Imagine you passed on prematurely or unexpectedly exited from the business death because of death or a total & permanent disability or illness. You left behind a business where you are one of 4 business partners.
What do you think would happen? There are a few scenarios:
Scenario A
The remaining business owners will fight over the shares of the outgoing business owner. This could result in adverse publicity. Without any resolution, the business would eventually close.
Scenario B
Business owners would fight with each other over who gets what percentage of the business.
Scenario C
Sellers of the business would want the highest price possible while buyers would want the lowest possible price.
Scenario D
If the outgoing business owner is the chief negotiator in loans and credit lines, without him or her around, the business would not be able to obtain more loans. Worst still, it may be forced to settle outstanding loans immediately.
Scenario E
If the outgoing business owner were the top sales person, without him or her, there would be a drastic decrease in sales figures. This would in turn reduce the overall profitability of the business greatly.
Scenario F
If the business owner departs prematurely, his family would be left without a breadwinner. This would affect the sustenance of the family as income would have stopped flowing in. Their future lifestyle and livelihood will be compromised.
Scenario G
If the outgoing business owner is a highly skilled person or know-how and is a keyman of the business, the loss would be catastrophic to the running of the business.
Scenario H
If the business owners suffers a permanent disability or a dread disease and is no longer able to contribute to the business, his or her future income will stop. Money is needed the most when you are incapacitated. What more, there are medical costs and other related expenses to take care of. How is he/she going to manage?
Sounds like the stuff of drama serials? Well, you can't be more wrong - these take place in real life too.
In my next sharing, I'll talk more about the steps involved in Business Succession Planning. Business owners, this is not the time to think why you should do it but the time to start taking action!
