Why Contingency Plans Are So Important To Success
Well, if you’re reading this blog, you’ve probably heard…We just finished one of the ugliest and most emotionally-charged elections of my lifetime.
President Abraham Lincoln described our country as a fortress. It would never be destroyed from outside, but only from within. I fear the “fortress” built for us is at risk. I pray as a country that we will come together as a united people to make our country stronger than we ever thought possible.
Which, you might have guessed – also makes me think about your family business. I hope your family isn’t divided. But let’s be honest and agree – it doesn’t take an election to cause rifts between family members. You have to deal with conflict, as we’ve covered in recent blogs…but without a contingency plan, your entire business can fail as a financial “fortress.”
One reason I believe our republic has lasted so long and provided opportunities for so many people is how well the system was designed. Our Founding Fathers understood how conflict and discord would invite “Type A” personalities to run for office, and attempt to seize control. So they designed a system that keeps the government broken into three different branches, mostly arguing with each other, so we can get on with our lives.
Your family business doesn’t need to be designed like our republic. But it does need good architecture. In advising family business owners, I’ve come across too many who leave the outcome of an emergency or disaster unaddressed. They build impressive businesses that reward hard work. But that’s like building a skyscraper with no fire exits, smoke alarms, or emergency exits.
We’re going to talk about important things to include in your family business’ contingency plan. But first, let’s go a little deeper on why you need to do this. It’s easy to read the word “emergency” or “disaster” and think it will never happen to you. I hope it never does…but you should think about some of the implications if you’re wrong.
This might take more than two minutes. From personal experience, I recommend thinking through things like this in the company of trusted advisors. Click here for a FREE Business Transition Assessment and a 30 minute virtual review ($299 Value).
Why You Don’t Get To Thumb Your Nose At Murphy’s Law
I don’t mean to sound like a pessimist or a “prepper” here. I realize you’ve got more important things to do than hoard canned goods in an underground bunker. But the old Boy Scout motto of “Be Prepared” comes to mind. While I join you in hoping for the best, we have to be willing to accept “the worst” as a possibility when we do business, which brings a few stories to mind.
A former client I’ll call “John” owned a janitorial company. He had a lucrative cleaning contract with the federal government, for one of their office buildings. Well, John died suddenly, and his daughter, Sarah, wanted to take over the business...but she was not an owner, and John did not have a contingency plan in place. Because of this, the contract and John’s business ultimately died with him.
Most privately owned companies have business loans personally guaranteed by the owner. Leaders should discuss with financial institutions whether the guarantee can be transferred to the next generation. Then, they should have a matching conversation with those next generation members, to make sure they’re willing to accept responsibility when the time comes.
Customers expect their most important suppliers to have a contingency plan, if anything should happen to the business owner. Because your product/service may be an integral part of their sales marketplace, it is important to know you have a plan to care for them, in the event you are no longer personally able to serve them.
Maybe one of these examples sounds familiar – a source of income, a business loan or a supplier who depends on you to support their business.
I know of a young man who does highly specialized application development for iOS apps. He is earning an incredible income at his age, because so few people can do what he does at his level of skill. His family is active in the business, helping him market and develop systems and processes. But none of them could take over with his finesse behind the keyboard. And that means the income they enjoy is at risk.
Could your business be at risk in your absence? How do you anticipate all these obstacles, with so many other things to think about? One thing’s for sure – you’ll do much better when you have outside, experienced eyes on the project. Click here for a FREE Business Transition Assessment and a 30 minute virtual review ($299 Value).
How to Build Your Family Business Fortress
I want to start by saying, “Don’t get fixated on what could go wrong.” It’s wise to be mindful of where your business is vulnerable, but not if you lose your mind in the process. You can’t go around thinking you need a contingency plan for everything. How can you possibly anticipate everything that will go wrong? Nobody saw 9/11 or COVID-19 coming…some things are simply unavoidable.
Even so, you have to consider – you could become incapacitated, or die unexpectedly. Recessions and depressions happen. Natural disasters common to where you live are…well, common to where you live. Here in Nashville, tornadoes sometimes happen. In California, you worry about earthquakes. In the Gulf of Mexico, it’s hurricanes, and up north in the tundra, it’s blizzards and snowstorms.
Technology changes things very quickly these days. The Kodak film company was slow to adapt to digital cameras, especially after they invented the first one in 1976. They didn’t get wiped out by Fuji, however…it was the iPhone they never saw coming. Be aware of how changes in the mechanisms and delivery of products and services can affect your business.
Consider potential losses from a financial perspective. It’s okay to run a couple of scenarios that feel a little uncomfortable to consider. The point of the exercise isn’t to send yourself into a panic, but to see how far you have to go to be in position to absorb a certain size of hit.
No matter what financial conclusions you reach, it’s counterproductive to have a messy balance sheet. If you’ve got debt and inflated expenses, you’ll end up more anxious than you felt before starting. Don’t do this without trusted advisors who can help you see things clearly.
A good place to start is to assess where you are now. You can’t plan for where you are going if you don’t know where you are.
Click here for a FREE Business Transition Assessment and a 30 minute virtual review ($299 Value).