Ambiguity by design is a favoured style of many business owners.
It’s heaven for the business owner who likes to make the decisions and leave options open, but it often leaves capable managers deferring to owners, with staff and family members uncertain and unwilling to proactively manage issues.
For these business owners, ambiguity allows for the greatest flexibility – until the business owner isn’t there.
Today’s question asks whether your business model would be viable if you were no longer able to oversee the day-to-day operations.
What would the financial ramifications look like?
Many owners aspire to structure their business to run smoothly in their absence. I’m not talking about the immediate financial well-being of the family members that could be addressed by things like benefits programs with health care, critical illness, business overhead, disability or life insurance.
Nor am I talking about pension plans or group RRSPs.
Governance relates to decisions that define expectations and consistent management, cohesive policies, decision rights for a given area of responsibility and performance evaluation.
For family businesses, good governance can include addressing the management, ownership and family as separate, yet linked, entities. For the time-starved business owner, it feels more productive to pursue the next dollar of revenue than to put time into strategic planning, leadership development or emergency planning.
Hiring an interim CEO is an option many business owners face with reluctance.
A great question for consideration: How the business might fare by itself in the interim; is it assumed the comptroller or other senior executive(s) would step into the role?
Could you establish a “leaders group” or an advisory board to run the business on an interim basis?
For business owners with partners, the ante is raised, especially if there are provisions addressing an extended illness within the shareholders’ agreement.
Is it equitable to split profits long-term with a partner who cannot contribute?
A common insertion in a buy-sell agreement is a clause through which the interest of a deceased partner is bought out using life insurance.
Less frequently addressed is disability buy-sell insurance – a policy that provides a lump sum to buy out a disabled partner’s interest.
What would happen tomorrow if the owner couldn’t come in? How long before there are consequences felt?
Would the financial and other impacts to customers, staff, suppliers, lenders and other shareholders be minor, significant or worse?
Business owners are personally invested – most are loath to surrendering control.
If your goal is to protect your business, preserve a legacy, transfer wealth to the next generation or ensure that your business excels, it could be prudent to devote some time to your strategic planning and governance structures. •
