Preparing For The Unexpected
By Tom Houck
last three days were like a bad dream. His best friend and fellow
entrepreneur, John, was killed instantly in a horrible auto
accident. Dan spent the 72 hours following the tragedy consoling
the widow, comforting the kids, and trying to determine what assets
John had, where they were, and what to do about the business, its
employees, and customers.
business owner owes it to his or her family, employees and customers
to create a plan for the “What If”. If John had been adequately
prepared, he would have provided written guidance. Without it, his
spouse, children, employees, and professional advisors had no clue
where to locate financial assets or how to access them. When
someone dies unexpectedly, there are immediate demands for cash for
the funeral, and day-to-day bills. Business owners and their
professional advisors need to work as a team to develop a “What if?”
plan, which would allow everyone involved to know exactly what to do
and how to proceed. Unfortunately, most people tend to have a
mindset of invincibility, and refuse to take the time to prepare
their loved ones for their untimely departure.
business left hanging: From what Dan could ascertain, John had
no life insurance, and no written plans for handling the business in
case of his demise. He had all kinds of equipment leases, business
loans, and vehicles that he had personally guaranteed. When he
passed away, these debts became immediately payable, and the
creditors were serious about collecting. Other than the business,
John’s biggest asset was his home, followed by some modest
retirement and college savings accounts.
John was a hands-on entrepreneur, his customers had already started
to leave. Shortly after the funeral, John’s General Manager
contacted Dan. He told him that, in order to protect his family, he
was accepting a position with another company. Things continued to
spiral, until in a matter of weeks, the only remnant of John’s
business was the inventory and equipment. In order to turn those
assets into cash, they would need to be auctioned off to the highest
Unfortunately, this scenario is more the rule than the exception.
Many a home could have been saved, a college education funded, and a
widow able to stay home and see to the children if the entrepreneur
had, at some point, forced himself to ask the simple question—“What
Wake-up call: Dan knew that the time had come to stop
procrastinating. A business advisor had approached him several
times during the last 10 years about creating a “What if?” plan. He
told him how important this preparation was, but Dan thought that
this guy was trying to sell him life insurance, or some other
financial product that he wasn’t interested in. Now, after losing
his best friend, reality slapped him hard in the face, and he knew
it was time to do the right thing to take care of his family.
create a “What if?” plan, Dan’s advisor gave him a series of
exercises, which included important questions that needed answers.
First, they discussed what would happen to the business if anything
happened to Dan unexpectedly. They reviewed:
professional advisors should be contacted immediately.
employees would be critical to retain in order to keep the
business’s value intact for six months.
additional duties would each of these employees be responsible
type of bonus should the employees receive for staying on
through this critical period.
would be a good potential buyer after the smoke cleared.
the business should be priced.
should the deal be structured to protect his family.
they looked at what would happen financially to Dan’s family if the
unthinkable happened suddenly. They reviewed:
loans, leases, and other obligations that Dan personally
guaranteed for the business.
much income his family needed to live on each year.
he stood regarding college funding for his children.
amount of personal debt (including mortgage, credit card debt,
and car loans) that he had outstanding.
amount of cash flow that would be needed to keep the company
going for six to 12 months, and support the family over the same
Creating an action plan: When Dan completed the exercises, he
asked his attorney, CPA, CFP®, and business advisor to meet as a
team. He reviewed the results from the exercises, and asked them to
work together to develop a written plan to ensure that his wishes
would be carried out if something unexpected should happen to him.
He also purchased an inexpensive term life insurance policy to cover
every dime of such a financial impact in case he died.
Fortunately, Dan hasn’t had to enact his “What if?” plan. He sleeps
soundly knowing that his family is covered if anything ever happens
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about Thomas E. Houck.
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