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The Unplanned Exit

  • March 27, 2019 8:28 AM
    Message # 7247293

    One of the least-heralded benefits of exit planning is preparation for an unplanned exit. In the brokerage business, the reasons driving the listing of a company are known collectively as the Dismal D’s.

    Some of “Da D’s” are just typical reasons behind putting a business up for sale. They include Dissension among partners, Declining sales, Divorce, Disinterest by, or Distraction of the owner and Debt.

    Others are the driving force for an emergency sale, usually far below the fair market value. Those are Disaster, Disease, Disability and Death. As we’ve said many times before in this space, sooner or later every owner leaves his or her business. If you wait long enough, one of these four horsemen of business apocalypse will claim your transition.

    Business Continuity Instructions

    In every exit plan we do there are Business Continuity Instructions. As I instruct our Affiliates around the country, BCIs should be part of every engagement. Only a small percentage of our clients will need them, but for those who do they will be the most important and valuable part of our services.

    There are two types of planning tools that often go by the name BCI, but fall short in my opinion. One is risk planning, usually associated with insurance. These are questionnaires that focus on financial risk management. Do you have sufficient policy benefits to take care of the business and your family?

    The other is business interruption planning, usually in anticipation of a natural disaster.  Do you have backup records, a place to establish phone answering, and communications with your employees?

    BCIs versus Disaster Planning

    Both financial risk assessment and disaster scenarios are useful, but neither takes the approach we do. Our BCI starts with one simple question. “What happens if you are suddenly and unexpectedly absent from your business for an indefinite time?”

    We begin from day one, hour one. How does the business open and function? Who is responsible for telling the employees? The vendors? The customers? Who has access to the bank accounts? Where are spare keys and security codes? Most importantly, who has the authority to make immediate decisions regarding operations, finance. personnel and administration?

    Who are your key advisors? Who should be contacted regarding legal, accounting, insurance, leasehold or benefit issues? Are there other trusted advisors who should be included on major decisions? What authority do they have?

    Is your Board of Directors capable of guiding the company? We find many small corporations where the owner is the only officer and Director. That means in his or her absence the company is incapable of functioning. Who names replacement officers?

    New directors musty be elected by shareholders. In the event of an owner’s death, ownership of the business may go into probate, crippling its ability to function.

    For each level of decision making, is there a dollar limit? Perhaps your operations manager and controller can handle most of the day-to-day between them. Does their authority extend to selling the company?

    Are key employees a flight risk? If they have to step up to a level beyond their normal responsibilities, will their compensation reflect their new authority? Who decides what they are worth?


    One area where I see frequent issues involves life insurance on the owner. If it is intended to purchase the stock from family members, who is the buyer? A company cannot buy itself. There has to be at least one other owner to execute the purchase.

    If the proceeds of insurance are intended to provide working capital, are they also pledged to the bank for a credit line? Do the policies have restrictions on their distribution?

    One particularly ugly scenario is when an owner has a buy/sell agreement funded by life insurance. In order to make the premiums tax deductible, he chooses to have the company pay for it. The benefit is paid to the company with the intention being to buy out the surviving family. However, the company is already in dire straits without its majority owner, and the remaining shareholder(s) hold onto the cash, leaving the deceased owner’s family without income.

    Unplanned Exits

    Exit planning is really about how you want to leave the business. It is a process of examining your choices, and deciding which you prefer. From that day forward you can make business decisions based on the outcome you seek.

    A side benefit, however, is deciding how to handle an unplanned exit. Hopefully it is never used, but when it’s needed it is invaluable.

    If you would like a fillable PDF form to draft your own BCI, just send me an email at

    Article reprinted from my exit planning blog, Awake at 2 o'clock?

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