Business Incapacity PlanningWhether you are young and in the prime of your life or you're a few years older and your business has become your focal point, it's likely that you are not considering one major scenario that can ruin your business: What if you become incapacitated? Nobody likes to think about getting sick and being unable to work on their passion. It's one of the reasons that keep people from creating their estate plan as well, it's just a topic we don't want to think about.

Just like your personal assets, if you don't have a business succession plan in place and something happens to you, your business is left at the whim of your local courts to decide how it should be run in your absence. In many cases, a court may actually need to appoint someone to formally act as the person running the business. While in the end, it may be the same person who you would have chosen, creating an estate plan avoids the delay of dealing with the court system and the legal fees that will need to be paid to get that person installed and running your business. 

​There are three common issues that we need to address together. First, who will manage the finances of the business? Second, who will do the day-to-day work of the business? Third, will the business have enough money to continue without the owner?

The simple answer to this problem is to have a plan for your business. As you are getting your business started, you can consider the various scenarios of what should happen after you are no longer working in the business (retirement, incapacity, selling your interest, etc.). When it comes to a plan for your business, as Benjamin Franklin famously said, "An ounce of prevention is worth a pound of cure."

Who Will Manage the Finances?

Front and center is often the question of who is going to handle the financial operations of the business. Especially where your business is run by only you, this question can be very important. If you aren't married or in a long-term relationship, who will be the best person to step in? It doesn't have to be a family member, but it should be someone you trust to be able to manage the finances and keep the business going if you are unable to do so.

To get this resolved, the easiest document to create is a power of attorney. The power of attorney can specify who will take over control of the finances of the company in case the owner is incapacitated.

Who Will Do My Job?

If you have employees, you should consider if there is a natural person who could step in and do your daily functions. That person should be part of the planning process and it's a good idea to work with them to create a system and a plan detailing what that person should do in case you are incapacitated. Please don't lock that plan away behind "Break in Case of Emergency" glass. Instead, it should be a living document that gets reviewed to make sure that the plan is up to date and ready to be used.

If you aren't immediately sure who should take over, then you should make an alternate plan for how to find someone to take over. Make sure that the plan is in writing and expresses your goals and the attributes you are looking for in someone who should take over in your business.

Will the Business Have Enough Money?

Depending on how vital you are to the business, you may want to consider if your business needs key-person disability insurance. The insurance is purchased on the life of the owner of the business and often the business pays for the policy and is designated as the beneficiary of the policy. If you have partners, this insurance is commonly purchased on the lives of each partner to make sure the business is protected in case it loses one of its main employees.

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Next Steps

If you’ve been considering business planning, or this is the first you are hearing of it and would like more information, let's set up a Legal Strategy Session and we can discuss if it is the best option for your situation.

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