Where do business continuity plans for small businesses go wrong?

Well thought out business continuity plans are a must for every business. Business continuity plans for small businesses can make all the difference between success and complete failure but if they’re missing a vital element the plan could be worse than useless.
There’s a devastating risk facing your business right now
Every business faces potential threats that could damage its future operations.
Yet there is a devastating type of risk that every small business potentially faces but surprisingly few business owners identify in their business continuity planning.

As a business owner how do you spot where that risk comes from?
It’s simple – take a walk over to the mirror and you’ll find it – yes, it’s you!

Sudden mental incapacity or death of the owners of small and medium-sized enterprises (SMEs) are the biggest threat to the future of their own businesses.Yet most owners of SMEs don’t even recognise these possibilities as being risks.

What about insurance?
Insurance on its own just isn’t enough to cover the risk. Some business owners take out insurance to provide an income to their families if they should be unable to work or if they die. Others will also make sure they have cover to produce funds which can be used to enable their co-owners to buy their share of the business.

The problem is that insurance on its own is not enough to avoid the kind of damage that can be done to a business if an owner ceases to be able to function in the business through ill-health or death.

What sorts of problems could arise?

1. Difficulties in trading
In the days and weeks following the event problems in carrying on trading could occur if no one else has the legal authority to make strategic decisions or even access the business bank account. This can happen, even in co-owned businesses.
2. Sale or winding up of the business
Disposal could be seriously delayed by the need to apply to the Court of Protection for a Deputy to be appointed or for a grant of probate to be obtained;
3. Valuation of the owner’s share
Valuations must be agreed by someone who has been given that authority by the business owner. There could be conflicts of interests if that authority is given to the wrong person;
4. Customers and suppliers
Loss of confidence could be a big issue. Customers or suppliers could lose confidence in the business if they can’t see that someone has legal authority to make decisions in the absence of a business owner;
5. Disagreements
Disagreements between the business owner’s family and co-owners could hamper the transition of the business and cause uncertainty about the future, leading to key employees leaving or being poached by competitors;

Problems can be avoided if a comprehensive review of the risks is undertaken and addressed by putting in place legally enforceable arrangements which should include:

  • Wills for each business owner appointing carefully selected executors and addressing the inheritance or disposal of their share of the business;
  • Lasting Powers of Attorney with suitable guidance to the attorney on how to conduct the business or negotiate a disposal of the business;
  • Shareholder or partnership agreements to govern issues such as valuation of the business share;
  • Cross option agreements to back insurances for each business owner.

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