Take a moment to think about this scenario: Your client got hit by a bus and, unfortunately, did not survive. It’s a grim thought, but an unfortunate event like that has a domino effect on business. Issues will crop up overnight and have to be resolved as soon as possible.
Businesses do not run by themselves. They need someone in charge to succeed. In the case of a sole proprietorship, overseeing and managing all business aspects is usually a one-person show. When a business depends entirely on the one person who runs it, even a minor setback can be challenging, not to mention something as horrific as the business owner’s untimely demise.
What happens to such a business in the worst-case scenario? Is there a business continuity plan? If there is no plan, what happens to the business? Finally, what will happen to the owner’s family and employees?
As a trusted advisor, your role and responsibilities are critical, so let’s address these impending questions.
What Is a “Hit by a Bus” Scenario?
The phrase “hit by a bus” translates to any devastating event that removes the business owner permanently from the scenario, which is the business. It is simply a metaphor for an unexpected event popping up, causing the owner to step away suddenly. This not only refers to the passing of a business owner but in any circumstance where an owner is forced out of business.
If your client were “hit by a bus”:
- What would you do then?
- What would happen to the company’s various projects, and who will ensure their continuity?
- What would happen to all the employees?
Unexpected, catastrophic events can lead a business into troubled waters, up the creek without a paddle, to use another common phrase. The salient point here is that your client needs a succession plan in preparation for a life-altering event.
All business owners should have a succession plan. Not only that, but they should also have a disaster recovery plan in place. Preparation is just another way of staying vigilant if something goes wrong.
As a trusted business advisor, you need to prepare your clients with a list of such possibilities and alert them or their team of trusted employees to take action when the time comes.
Related: Can your business run without you?
What Happens to Sole Proprietors?
When a sole proprietor passes, the business essentially goes with them. Since the company was solely owned, it automatically terminates after the owner’s passing, and all the business assets merge with the owner’s estate. This also applies to the financials, as their business and personal finances are more or less one. Anything the owner owned falls into their estate after they die and will be dealt with via the business owner’s will or by the probate court.
Sudden Deaths and Partnerships
In the case of general business partnerships, the partnership will dissolve. The remaining partner may then purchase the portion of the business belonging to the deceased partner. If this isn’t financially viable, then the deceased partner’s share of the business may be purchased by somebody else.
General partnerships usually fare better than sole proprietorships in such cases. Still, the future course of action is more or less determined by the surviving business partner(s) and the terms of the partnership agreement in place.
If the business were a large corporation or a limited liability company, it would not necessarily cease operation. It will continue to exist as before and retain ownership of all its business assets. The deceased owner’s stocks would then transfer as per the owner’s will.
What Else Factors into the Scenario?
While having a business succession plan is beneficial, several other things to consider.
How involved is the client in their business? Check your client’s overall involvement in their business operations. Is your client the one running the show? Are they responsible for all significant business decisions? Do they have a competent management team or a team of advisors? Do they have a skilled team of employees who can take over if required?
How many areas are they managing? Is your client handling a very niche business role? Were they serving multiple roles and responsibilities? Do they tend to micromanage employees’ jobs as well? Has your client ever delegated responsibilities to others in the past, or do they tend to do it themselves?
How many hours do they work a week? Does your client take time off from their business? Are they even willing to take time off to unwind? How many hours are they working in a week? Do they believe that the company won’t survive if they take a vacation or a sabbatical?
A client’s over-involvement in their business does not benefit the company’s general health. It is a cause for concern if your client is single-handedly managing or is trying to manage all aspects of the company. This failure to delegate proves that the business will face dire consequences if your client does not prepare it for their eventual departure.
Prepare Your Client for the Unpredictable
Help Them Delegate
First things first: help your client understand and accept that it’s impossible to manage all aspects of the company. If your client manages several departments, they expose their business to operational vulnerability.
As a business advisor, you can help by identifying areas of operational weakness with a realistic assessment of the company’s current situation. Advise your client to delegate more responsibilities to their management team and other employees. Help your client by creating a strategic plan that establishes all assignments, identifies who looks after, and manages which aspects of the business.
When business owners are ready to delegate tasks to others, they also make their employees more capable of handling new jobs and taking over responsibilities, which reduces the business’s sole dependency on themselves.
Micromanagement never helps anyone; if anything, it hinders smooth workflow. So, advise your client to let go of a few tasks or, in some cases, cease micromanaging. Instead, help your clients delegate duties to employees and train them to complete those tasks competently.
A company’s biggest asset is its employees, so investing in their professional development is critical to sustaining business success. According to a survey conducted by Gallup, organizations that conducted regular employee development programs saw an increase in sales and subsequently doubled their profits, compared to companies where no such efforts were made.
Regular training programs help foster positive company culture, employee engagement, and more. In addition, regular training and development activities update the workforce about new technology and better processes and improve their efficiency.
Take a Break
Advise your client to ease up on their work hours and tell them to take a vacation.
Business owners often forget that they have a life outside their companies. Their over-attachment to their companies doesn’t let them take time off or reduce their work hours. They end up logging in extra hours due to a mix of inner drivers like- anxiety, ambition, guilt, pride, an overdeveloped sense of duty, and a strong desire to prove that they are essential. But they fail to consider the most critical question: How have their long hours helped them? Owners rarely stop to ponder over the aspect of whether all those extra hours are giving them better outcomes.
As a trusted advisor, you can help them understand that it is not their life even though their business is significant! They have lives outside the workplace. So, advise them to make time for things other than work-related activities. Tell them the importance of maintaining a work-life balance and explore things to reduce work stress because both a healthy mind and a healthy body are essential for overall well-being.
Taking a break or vacation can help the owner understand their role in the company. If your client is heavily relied on throughout their vacation shows that if they do have to step away, it won’t be good for the company.
Can your client completely switch off from work mode? Suggest they put it to the test for a few days by taking a vacation. Bombardment with work-related issues and requests while on vacation is a bad sign.
The ideal way to safeguard personal and professional interests is by designing a succession plan as early as possible. The terms of the succession plan should be reviewed by all the parties involved.
Your client’s other big concern is to safeguard their family’s interests. Life insurance can be of enormous assistance here. An insurance payout will also keep the business running should anything happen, and it can be tailored to suit and fulfill your client’s specific needs.
Should the owner step away, there should be specific measures to protect the family, the business, and employees.