Preparing Your Family Company for Your Unexpected Death

If you own a family-run company, then you understand the American dream. It’s the dream that everyone who works hard will be able to create something of value for their families. This is the dream that kept you going through dry seasons, disappointments, and even recessions. You stayed up late and woke up early. You’ve sacrificed to give your family a good life. Most likely, you hope that your family will keep the business going for generations to come. That’s why you need to prepare your business for every eventuality- including your unexpected death.

Here are 4 key questions to help you prepare your family company for your unexpected death.

What are your core values?

Years ago, you began your company with guiding principles that now provide meaning and purpose to your work. For your company to continue along this purpose-driven track, you will want to clarify these values and develop a mission statement. Take the time to crystallize what sets your company apart from the rest. As you do so, you can be confident that your company will continue in the right direction, even after your passing.

What is your business’s current value?

Before you develop a succession plan for your passing, you will want to have a reasonable assessment of the value of your company. While there are several ways to assess company valuation, you may want to consider the following. 

What is the company’s net worth (the difference between assets and liabilities)? This provides a good baseline of where the company currently stands. 

What is the annual sales revenue for the business? This is often multiplied by a factor of two to determine current value. 

What is the size of the company? A larger company will often be more established and generate greater profits. 

In addition, you should consider intangible factors. A company’s value goes beyond numbers on a page. That means that a company with good future growth potential or a key geographical location could outperform traditional valuation estimates.

Have you prepared a succession plan?

The development of a succession plan for your family business will allow you to make adjustments in roles and leadership as needed. Additionally, this plan should allow you to provide future income for your family, while minimizing tax burdens. 

A succession plan takes significant time to develop. So, it’s important to get started on it. Having your spouse as the succession plan isn’t usually a smart approach. Neither is having your children in their 20s suddenly take over the business after your demise. 

A succession plan with good governance will provide your family a measure of control over business operations after your passing. Your accumulated wisdom has no expiration date!

Who will take over your role in the business?

For your company to succeed after your passing, you will want to identify someone who can lead the organization as you have. Consider your current responsibilities and prepare a comprehensive list of skills and aptitudes that will be essential to future growth. 

Perhaps you have several employees that you can see stepping into leadership one day. Imagine how each candidate would lead your company into the future and what skill sets you might want them to develop prior to any future transition to leadership.

By planning ahead, you can make the transition smoother for both your family and your business as a whole.

Do you want your family company to be prepared for almost every contingency? The Sudden Death Checklist is the go-to resource for business owners who are proactive about planning ahead for their unexpected deaths.