What to do when the boss is unexpectedly absent and no emergency kit is packed? When decision-makers are absent, unprepared employees are often burdened with more responsibilities and tasks than they can bear. Without contingency planning, companies can be threatened by the end of even short periods of absence by the boss.
Unprepared entrepreneurial death as a worst case scenario
We will first illustrate the problem with an example:
Father and son are partners in a consultancy firm. Many years ago, they already stipulated in the partnership agreement that upon the death of the father, all remaining shares would be transferred to the son.
The father believes he has settled his inheritance well. Therefore, he primarily wants his wife to be provided for when he is no longer at her side. The two are married for the second time. She does not have such a good relationship with the son of the entrepreneur.
So in the will, the company is transferred to his wife.
Then years later, when the senior passes away, the chaos is perfect. For son and stepmother are about to face a legal battle in court over the company inheritance.”
Background: In Germany, company law takes precedence over (!) inheritance law. In the case of the management consultant, it was simply forgotten to synchronise the will and the articles of association.
A professionally prepared emergency kit is not only an important tool for older entrepreneurs. Rather, it should be part of the (continued) management of every self-employed person as a strategic task.
And this is completely independent of the age of the entrepreneur or owner of a company.
What happens when, overnight, due to serious illness or death, the company and family are faced with momentous decisions?
The business emergency is an unpleasant topic, but a necessary one for every boss who takes his business seriously. Providing for the future is an obligatory task? says succession expert and BDU member Nils Koerber from KERN in Bremen.
Practice shows: Some businesses cannot even be unlocked in the morning when the boss is out.
It becomes serious when the owner has not involved anyone in the management of the business. Then the family is usually faced with an insurmountable mountain of work. Often, the lack of powers of attorney, wills and account access even block every decision.
Only with patience and a realistic waiting period of about 3 months can the official death certificate and the inheritance be expected.
Ideally, the bank will help because of personal relationships. This may or may not be the case, and then things get really tight.
A second level of management, even if a company has only 10 employees, is the first concrete measure to ensure that an operational organisation does not falter in an emergency.
Above all, every company should always be prepared for the sudden loss of its manager.
However, no emergency plan works on its own and without information and preparation.
Anyone who has to step into the breach needs all the necessary information. Experts therefore advise to bundle all important documents and information in a folder (even more contemporary: on a CD).
It is important to distinguish between three main categories in a company emergency kit:
- Legal, financial and corporate foundations, with precise instructions, powers of attorney or confidential information.
- In addition, create an overview plan of the most important work processes in the company. Who is responsible for what? Who could stand in for whom in an emergency?
- Another guiding question could be: What happens or does not happen in my business if I am absent for a week, a month, a whole year or even die?
The following business contents should be included in every emergency kit:
- The contingency plan. It is considered an overview for the preparer himself. It is the comprehensive analysis of the current situation and the basis for discussing the details of business and private arrangements with specialist lawyers and the tax advisor.
- The private balance sheet. It serves as an overview of all assets in netted form. At the same time, it is also a good structure for the distribution of heritable allotments.
- This balance sheet should be updated every 2 years. After all, real estate value, company valuations or other investments change.
- A wealth plan. It serves the entrepreneur’s own transparency. Only in this way does the entrepreneur know how much wealth is really available for the time as a private individual or what expenses will be incurred over many years. Sometimes this can also mean painful cuts, because it becomes clear that the previously occupied large property is no longer economically viable for the future.
- The Tax planning. Privately and in business. Time is an important factor here. The earlier there is clarity about this, the sooner it can be acted upon analogously to legal deadlines in the provision for the future.
- The emergency plan. A structured plan with all the facts and figures for organising the first days and weeks in an emergency.
- Powers of attorney. Succession specialist Nils Koerber particularly recommends: ? Talk to all those concerned early on about the idea of transferring a power of attorney. Nothing is worse than well thought-out proxy arrangements being rejected in an emergency.
- Bank powers of attorney. It should be noted that the original documents of the respective bank are always used and not blanket formulations. This could lead to legal uncertainty for a bank.
- Passwords and/or a key directory.
- The social contract.
- Possibly an advisory board that has already started work well before day X and can be individually equipped with powers of attorney.
- Overview of all private and business insurances.
The following topics are of a more private nature:
- The will. Ideally with the involvement of all those concerned during their lifetime.
- A living will for emergency medical care.
- A power of attorney for care and / or precaution for private circumstances.
- A declaration of custody in the case of minor children.
- A burial decree. Gladly extensive and detailed.
- Optional: Personal messages or letter to relatives.
Collect everything that is important for the business and also for the family in a folder.
Furthermore, it is best to play out Day X once in the company as an emergency exercise. This will reveal open gaps and create security for everyone involved.
The view from a third party helps to develop clear plans. This is because they look at the company and the family situation from the outside, detached from entanglements and emotions. In addition, emergency planning can be prepared in this way, which will also last if the worst comes to the worst.
A pleasant side effect of a professional emergency case is that the presentation of an emergency case leads to a better rating in the rating discussion with the bank. This also means you get more attractive interest rates.
Besides a missing emergency kit, there are other things to consider for a successful generational transition. In this webinar shows you KERN founder Nils Koerberwhich mistakes they must avoid at all costs.
Image: ©mipan / Fotolia.com
About the author:
Nils Koerber is co-founder and owner of KERN - Die Nachfolgespezialisten in Bremen. Practitioner with many years of experience in all questions of company succession in family businesses. Specialised in the sale of companies in medium-sized businesses and the generation change in family businesses.
Tips for further reading:
Nationwide study: Lack of business successors threatens family businesses
KfW - Analysis: Company succession a burning issue in SMEs
The entrepreneur’s will as the key to the emergency kit
How do you recognise a reputable business sale advisor?
Free webinars on business succession
5 important trends in business succession in 2019
Emergency planning
Private balance sheet
Asset plan
Tax planning
Emergency plan
Powers of attorney
Bank proxies
Passwords and/or a key directory
Articles of association
Overview of all private and business insurances
1. legal, financial and corporate bases, with precise instructions, powers of attorney or confidential information.
2. overview plan of the most important work processes in the company. Who is responsible for what? Who could stand in for whom in an emergency?
3. what happens or does not happen in my business if I am absent for a week, a month, a whole year or even die?
The official certification of death and inheritance usually takes about 3 months. In this difficult situation, good personal relations with the bank also help. A second level of management also helps, no matter how small the business. For an emergency plan to work, information and preparation is needed for all involved.
