Security in the Aftermath of a Tragedy: The Need for a Business Succession Plan

By Brad Cummins | December 1, 2014

Starting a business is, statistically, a risky enterprise. The vast majority of ventures fail because of delays, poor product development, inadequate sales and marketing, and lack of working capital, among many other things.

But the companies that do make it – the ones that defy the odds, and triumph in the marketplace – are still vulnerable to unexpected developments and tragic circumstances.

Should a partner or executive pass away, these same organizations often lack a succession plan or business life insurance to stay afloat.

The result is catastrophic for everyone.

The passing of a principal may leave a company unable to make payroll, honor contracts, and reimburse employees and vendors alike.

Losing a Leader

The passing of a principal investor may leave a company unable to make payroll, honor existing contracts, and reimburse employees and vendors alike. Within days or weeks a once-active manufacturing plant, filled with the latest machinery and electrified by the busy to-and-fro of workers, may close; the warehouse vacated, men and women left jobless, and an emerging brand delivered stillborn – all because no one bothered to think about and invest in a succession plan.

Please note: This avoidable mistake is not exclusive to start-ups, as some of the biggest corporations, including The Walt Disney Co., do not (or did not) have an identifiable succession plan.

In fact, one of the more unsavory elements of Michael Eisner’s tenure as CEO of Disney is that, even up to and moments before undergoing quadruple bypass surgery, he had no anointed successor. Nor is there any indication Disney had enough business life insurance to withstand what could have been a huge drop in the price of their stock had Eisner not survived.

Now, apply these variables to a thriving software company, or a four-person development team with a “killer app” that promises to further revolutionize social media or an independent insurance agency.

If one or all of these groups does not have business life insurance, things can collapse very quickly.

I write these words not to frighten readers; I offer this news as a way to empower people to protect themselves against the consequences that follow a terrible event.

On a personal level, which is one of many reasons why I care about this issue so deeply, I run my own insurance agency, Local Life Agents, with a focus on creating strategies to insulate individuals from multiple crises.

And, because of the sensitivity of this subject and its urgency, I, too, have business life insurance.

Succession Plan

For professionals laboring over a business plan and financial projections, it would help if they would pause, so they may answer the one question not in the documents they intend to submit to shareholders or private investors.

“What is our succession plan, if our CEO dies and we suddenly have to ensure continuity of day-to-day operations and complete the program he or she began?”

What, in other words, will happen to this company if the face of the business – the person with the inventor’s sense of timing and brilliance – were to die tomorrow?

A lot of companies are unable to answer that question because they do not want to think of that possibility.

But the possibility exists – no one is immortal – and executives would be remiss if they did not address and insure against the aftershocks of such an occurrence.

Insurance and succession planning are part of a comprehensive business blueprint.

For the good of executives, employees and investors, it is critical to resolve this matter.

About Brad Cummins

Cummins is the founder of Local Life Agents, an independent life insurance agency offering life insurance products in all 50 states. Website: www.locallifeagents.com.

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Insurance Journal West December 1, 2014
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