The Show Must Go On: Protecting Your Business in Times of Crisis

17 Mar The Show Must Go On: Protecting Your Business in Times of Crisis

A business has its own life, separate from the owner or another executive. It must meet its deadlines, serve its customers and achieve its goals – even when the owner or executive has a personal emergency.

Unfortunately, an absent or unavailable owner or executive can be a disaster for a business. In-progress projects could be at risk of not completing, resulting in a loss of revenue for the business. There may be uncertainty around job security among employees. The owner or executive’s family may also have needs.

It can be overwhelming. When the show must go on, the best way to keep things moving is to ensure there are enough funds to cover the problem. You can protect your business by considering all your financial needs and planning for the crisis ahead of time.

Considering all the Needs

While the most immediate thoughts around an emergency are emotional ones, the family and the business will have immediate practical and financial needs as well. For example, the business may need cash for:

1. Providing an ongoing income stream for the family;
2. Paying back any loans, debts or obligations;
3. Hiring staff members to replace the lost skills and job functions;
4. Selling or reorganizing the shareholder equity of the firm, providing further cash to the family; and
5. Replacing lost profits due to the emergency.

It’s possible that the business already has enough cash to take care of all these needs, but it’s unlikely. And anyone designated to be the second-in-command will have a hard time deciding which steps to take without appropriate funding.

Planning for the Worst

A lack of funding is the last stress a family or business in crisis needs. All it does is place an additional burden for no reason.

While the cash flow of the company should be providing a steady income, there’s no guarantee that will continue indefinitely. In addition, a lack of clear leadership may have a serious financial impact. When this occurs the business has a number of choices:

1. Use cash: Draw on cash reserves to fund ongoing operations or for personal needs. Keep in mind that this cash may go quickly during difficult times and with additional pressure.
2. Borrow funds: Working with a bank or other lending operation will cost not just the amount needed, but also interest. It may also be challenging and costly to borrow at a time when the owner or executive is not involved. In addition, it can take time to arrange.
3. Sell or leverage an asset: When an asset is sold (or leveraged), the proceeds and terms are not to the business’ advantage. It may also take time to arrange.
4. Rely on insurance: By paying a stand-by fee (i.e., a premium), the insurer promises that the funds will arrive without delay. This means the money is available when it is needed most, without a hitch.

Businesses that prepare for emergencies have an insurance policy, designed to kick in when it is most needed. The policy usually covers the death of the owner or other executive, as well as disability or serious illness, and provides necessary cash for the business and for the family. The insurance policy is the best way to protect everything.

To learn more about protecting your business, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.