The recent news from New Orleans and Mississippi points out the need for family businesses to have disasterrecovery plans. Fortunately, we have little in Indiana to worry about from hurricanes, but other disasters are not uncommon.
Consider the possi ble catastrophes that might strike your business. What have you done to protect the business against the consequences?
Business-continuation and other insurance can mitigate the consequences of a wholesale destruction of your business facilities after a tornado or other natural disaster. But other calamities also could place the very existence of your business at risk.
How much of your business is dependent upon a key supplier, a key customer, one or more key managers, or the continued legal protection of your ideas, products, techniques and technology?
The need for diversification of suppliers and customers is an old song, about which little new can be said, but there are steps you can take to minimize the impact of the other possibilities:
Key-man life insurance might provide some protection against the premature death of a manager, since those benefits can be used to attract a successor manager.
Insurance isn't the answer if a key manager were to become permanently disabled, though, so you should identify and train possible successors who could step in with some on-the-job training if a manager were to go down unexpectedly.
Seek legal protection for the ideas, products, techniques and technologies that are unique to your business, so competitors won't be able to use your intellectual property against you.
In addition to these obvious catastrophes, the greatest threat to most family businesses is the premature disability or death of the owner.
What if you had a stroke and were no longer able to manage the business? What if you were to suffer a heart attack and die? Who could step into your shoes immediately to run the show? Who is equipped to calm the fears of anxious suppliers, customers and employees?
Do not underestimate your importance to the success of the family business.
You must begin now to identify and train future managers who can run the business in your absence. These might be family members; however, success of a family business probably depends more on having the right people in place than on satisfying the often-unrealistic expectations of children and in-laws.
If a key manager now has responsibility for a significant area of the business, consider giving him or her a different area of responsibility. Broaden the horizons of the potential candidates. Move them into different departments.
Can your successful sales manager do as well when working with your major suppliers? What does your production manager know about the need to bring in new customers? Can your chief financial officer flourish outside of the back office?
Move managers around and see which one rises to the top.
You might think that one or more of your children or their spouses may someday have the interest, talent and skills to run the business. But when will they be ready? What would happen if you were to become disabled or die before then?
Work on a disaster plan now, when things are going well. This is the best time to have a heart-to-heart with yourself about the future of the business if you were not there.
Natural disasters, such as floods and tornadoes, are relatively easy to protect against. Insurance and your continued ability to manage can sustain operations while the material business is reconstructed. But what happens if you suddenly were unable to manage the business for some reason?
This is meant to be a call to action. A call to which only you can respond.
Manterfield, a partner in the law firm Krieg DeVault LLP, assists family businesses with succession planning. The information in this column is not intended to be legal advice.