Imagine your business if you or a key executive were to die unexpectedly. No-one wants to talk about death, and it’s the last thing most entrepreneurs think about when they start a business. It is, however, something that deserves a thought. Plan for the possibility now, and you will save your colleagues a lot of trauma and financial uncertainty while they are coming to terms with their loss.
When a company’s leader dies unexpectedly there is a huge risk of losing everything. In an article Jim Murphy, a successful entrepreneur, shared what he had learned when facing the death of his long-time business partner, Ari Ramezani. They were serial technology entrepreneurs who formed several successful companies prior to their current enterprise, PhonePower, a VoIP services provider. Murphy took a few steps to ensure the company’s future when he learnt about his partner’s illness.
Planning for the unexpected is part of a successful business’s planning. Put a contingency plan in place in case of the death of a partner. Fortunately Murphy had time to install a board of directors that could replace the company’s two-man leadership structure. It is a good idea to have an alternative leadership structure should it become necessary, like in this case.
Keep your investors informed about the situation if a partner should become seriously iIl – they have invested their money and faith in your company and deserve to know the truth. Although Murphy experienced some anxiety about informing the investors about Ramezani’s declining health, he eventually chose to be upfront about it, and his team presented their business projections to allay any fears from the investors. It was the respectful thing to do, but also smart business. There are often clauses in loan documents that permit the lender to call in the loan when an owner or executive officer of a company leaves or dies.
It will be worth your while to examine your insurance policies, as there may be protection from such a scenario. A key person policy will go a long way towards covering a company in the event of a key person, often the source of innovation or primary income, passing away. It also provides a financial safety net for your company and some protection for the stakeholders.
Death is not on your mind when forming a new business, but be smart and plan ahead – anything can happen, and you would want the company you have worked so hard for, to be protected in case of such a tragic event.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)