Do you have a business continuity plan and a written plan to transfer ownership? Only 20% of business owners do. We are here to help you prepare.

By Hightower St. Louis on April 11, 2023

Working Through a Co-Owner’s Death

The death of a co-owner is a tragedy for many reasons. For many co-owned businesses, co-owners are also close friends. What makes the suffering worse is when the death of a co-owner hurts the business in the months and years after the death. It not only makes it nearly impossible to mourn and heal but also affects the surviving owner’s family, employees, and future. 

In the face of a co-owner’s sudden death, how can you quickly prepare the company for a sale? Here are a few steps you can take. 

Keep financial security in mind  

Before you take any actions to sell after a co-owner’s death, determine whether a company sale is in the best interests of your financial security. 

It’s crucial to remember that the most important aspect of planning for a successful future is achieving financial security. If at all possible, it’s prudent to take steps that allow you to continue to pursue that goal, even in the face of a co-owner’s untimely death. In other words, don’t sell your business short. 

If you aren’t sure what it would take to achieve financial security upon a co-owner’s death, consider contacting your Advisor Team. It’s too easy to make snap, emotional decisions in the face of a major loss. An Advisor Team can bring both expertise and level-headedness to the situation. 

Turn to your Business Continuity Instructions  

In a co-owned business, a strong strategy to address a co-owner’s sudden death is to turn to your written Business Continuity Instructions (BCIs). 

BCIs guide your Advisor Team, family, and surviving co-owners toward what they should do to protect the business and the decedent’s interests should a sudden death occur. These plans can also provide a path to sell the business for as much money as possible as soon as possible, which is a common strategy that surviving owners choose to consider. 

BCIs are different from a Buy-Sell Agreement. While a Buy-Sell Agreement may provide a strategy for transferring ownership upon a co-owner’s death, it may not provide guidance about how to keep the business functioning. This can have widespread effects on how, or even whether, the surviving owner can sell the business and achieve financial security. 

Lean on your next-level management  

A benefit of installing next-level management is that next-level management strengthens your business in the likely event that you and your co-owner(s) live long and prosperous lives. 

When an unexpected death occurs, next-level management can be the catalyst that drives a quick, efficient sale. 

It may be the case that, following your co-owner’s untimely death, you may not want to continue running the business. Instead, you may want to sell it as quickly as possible. 

A next-level management team can open the door to a quicker sale. That’s because the next-level management team is capable of running the business in the absence of the current owner. 

Conclusion 

Following the death of a co-owner, it’s much more realistic to prepare for a quick sale if you already have plans in place. More specifically, having (a) knowledge of what it would take for you to achieve financial security, (b) BCIs, and (c) a next-level management team already installed are key to making preparations for a quick sale after a co-owner’s death more likely. 

However, if you don’t have these plans in place—or haven’t begun to consider these plans—it can be difficult, if not impossible, to prepare the business for a quick sale that allows you to achieve financial security. And with the added emotional toll the death of a co-owner can have, it becomes even more challenging to make objective longer-term decisions. 

We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience. 

Neal Furlong, ChFC ® , CEPA ® , CLU® 

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