How should businesses prepare for leadership and financial contingencies?

Your company's leading edge is tied to the skills of key people-innovators, managers, relationship builders. Their loss can be difficult to quantify because so many components of the business will be affected. It is more than replacing a job function-consider the loss of . . .

• Sales revenues, market share, and client goodwill

• Proprietary knowledge and systems

• Production capacity and cash flow

• Credit standing with lending sources and suppliers

• Time and money to recruit and develop replacements

And what would losing the Number One Key Person, the owner, mean? You may have buy-sell agreements in place, but have they lost their effectiveness because circumstances or assumptions changed while no one was keeping track?

A. Are your business succession and legacy plans documented and up to date?

1. My family would struggle to settle my business and personal affairs if I died or became incapacitated.

2. My planning is organized, but my family may still face stress in settling my estate.

3. My Business Exit and Estate planning documents are up to date, but the Pandemic has made my Exit plan more of a contingency than a Succession plan for legacy goals.

4. My advisory team meets with me annually to ensure everything is organized, creating a clear roadmap to settle my affairs with minimal taxes and legal fees.

Questions CEOs and CFOs should ask to mitigate the company's risks.

1. How do we define the added value we offer our customers? Which employees control it? What are the risks of the company losing them?

2. What is our ideal competitive position? What key people are we depending on to get us there and keep us there? What are the risks of losing them?

3. How has our corporate philosophy evolved? Who defines it? How important is that person to the company's success? What would losing him or her mean?

4. If key shareholders were unexpectedly gone, who would control the company? Could buying out inactive shareholders drain our earnings or impede our growth?

B. My financial plan ensures peace of mind for my family and me.

1. I worry about not having enough money for retirement or market downturns.

2. I think I have enough saved for retirement, but I'm unsure about my family's future after I'm gone.

3. I believe our savings will cover my spouse's and my lifetime, but there are some unresolved issues for our family.

4. Regular reviews with my advisory team give me full confidence that all aspects of our financial planning will support us for life.

C. My business and investment objectives are segmented by timeframe and priority.

1. My business is my retirement plan, though I may never retire or afford to.

2. The Pandemic has negatively impacted my business outlook. I'm unsure how my investments and insurance are set up for the future and fear market corrections.

3. I haven't planned an exit strategy for my business or its sale value. I don't fully understand my investment risks or which accounts to draw from in retirement.

4. My advisory team and I created a succession plan before the Pandemic, but it's likely outdated. We've done some good planning, but it needs updating.

5. We regularly update our succession plan to support my family and reward key employees, ensuring they continue building their future within the business.

D. We should be better prepared with our income tax planning.

1. Each quarter brings a sense of urgency, and taxes can often be a source of frustration.

2. I have a general understanding of my tax situation, but there may be opportunities I am unaware of that could benefit my business, myself, and my family.

3. My tax preparer does not provide tax planning advice or proactive strategies.

4. My financial, insurance, tax, estate planning, and legal team guide me on saving money on taxes now and planning for the future.

E. My financial objectives have been stress-tested for the sequence of investment returns that is beyond my control.

1. If interest rates were to decrease, I could begin planning beyond merely covering payroll and bills.

2. My business profitability has declined compared to past levels, leading to uncertainty about selling it and having sufficient funds for retirement. I have external investments and am concerned about my exposure to the sequence of their investment returns and its potential impact on my retirement lifestyle.

3. I aim to sell my business within the next 3 to 5 years, and my partners may wish to buy me out. However, I am unsure if they can fulfill the terms of our operating agreement, which causes uncertainty about the extent to which I should be concerned about my outside investment returns.

4. Our CFO has refined our financial statements to assess what constitutes a favorable offer if we decide to market and sell the business. As part of our regular business planning, we evaluate the compensation of key employees and their potential as ownership candidates.

F. I know I should have a well-coordinated team of financial professionals.

1. I get some advice on taxes, insurance, and investments, but there are gaps.

2. I have independent advisers (accountant, adviser, attorney, banker, insurance agent), but they don’t work together in a coordinated manner.

3. I worry about potential healthcare expenses and know I haven't planned for long-term care.

4. My advisors should regularly update me on how my financial plan is structured to minimize what is risking my future lifestyle and legacy.