Is Your Family Business Prepared For The Future!

Is Your Family Business Prepared For The Future!

Owners of family businesses may be interested to know that only about 30% of such businesses will survive to the second generation.
The reason for this failure rate is that a large number of business owners don’t take the time to plan for the future. In fact only about 28% of such businesses will have a succession plan.
Remember, those business persons who fail to plan, plan to fail!

The Need for a Succession Plan

Many business owners are so busy making their businesses successful that they sometimes forget about the need for a succession plan.
Remember you’re not going to live forever, at some point you will be retiring from the business.
For most people the phrase ‘succession planning’ simply means a plan for transferring the ownership of their business when they retire.
However, many people forget that a good succession plan should also consider the transfer of the management of the business.

The following is a list of some of the issues you should consider when developing a succession plan:

  • Have you defined your personal goals and vision for the transfer of ownership and of management?
  • Have family members and key management staff had the opportunity to participate in the formulation of the vision?
  • Who do you want to own and/or manage the business? That is, have you identified your successor?
  • What is the importance of family involvement in the leadership and ownership of the business?
  • Determine those family members who want to be involved in the business, remember not all family members will want to follow in your footsteps
  • Perform a skills audit of family members and key management staff to determine those persons best suited to managing your business. Remember, ownership and management of the business are two different things.
  • Have you considered the potential for family conflict?
  • Make sure you differentiate between family and business problems. Most good family businesses have this problem under control. They are able to separate family and business issues and deal with them professionally.
  • Have the business regularly valued.
  • Are there written buy-sell agreements currently in place?
  • Do you have a contingency plan should you ever become incapacitated through an illness or injury?
  • Have you considered the best method for transferring your business ownership in terms of minimising or eliminating potential taxes and other imposts?

Natural Disasters – Is Your Business Prepared?

It seems to be simple human nature that we all live by the phrase ‘it will never happen to me’.

But how many times do you sit down to watch the evening news only to see a report on how a small electrical fault started a fire at some business premises totally destroying the building and its contents.

Considering the above scenario all business owners should ask themselves this one simple question – if it happened to me would my business survive?

The following discussion looks at the different steps a business owner can take to ensure that business damage resulting from floods, fire or similar disasters will not mean the end for your business.

Protecting Your Business Against a Disaster

The easiest way to prevent an unforeseen disaster from ruining your business is to make sure you have the right insurance. This entails:

  • determining what types of insurance are appropriate;
  • finding out how much insurance cover is necessary for adequate protection; and
  • reviewing your insurance needs regularly.

The above simple steps can mean the difference between keeping your business alive and forcing it to close its doors forever.

Business Interruption Insurance

The most important insurance policy in terms of protecting your business against unforeseen disasters is ‘business interruption insurance’.

This type of policy pays the business owner for the loss of business income that resulted from the suspension of operations while damage is repaired.

When taking out such a policy it is essential that the cover period is adequate. As a general rule, a minimum period of 12 months should be provided for.

It is also important that you make sure you are not underinsured. The policy should cover the business gross profit plus the likely payment of extraordinary expenses incurred because of the disaster. For example:

  • Renting temporary office space;
  • Having to find and use alternative suppliers; and
  • Expenses incurred in temporarily outsourcing certain business operations.

Is Your Business Disaster-proof?

In order to ensure that your business is prepared for any disaster you should ask yourself the following questions:

  • Is it common practice that all your insurance polices are regularly reviewed?
  • Do you know exactly what things your policy covers?
  • Is the data stored on your computers regularly backed up?
  • Is a copy of the backup files stored off-site?
  • If a disaster occurred would you know where to obtain temporary equipment to keep the business going?
  • How would you quickly replace lost inventories?
  • Do you have an alternative storage site for your inventories should your normal facility be damaged?
  • If your primary place of business was seriously damaged where would you manufacture your product or operate your business?
  • Do you know which employees perform key functions?
  • Should key employees become incapacitated have you considered either internal or external replacements (e.g. use of contractors)?
  • Does your business have up-to-date procedures manuals for all key functions?

The business owner who has both considered and answered all of the above questions should be well placed to cope with virtually any disaster.

Important: This is not advice. Clients should not act solely on the basis of the material contained in this bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

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