"What If?" - Preparing Your Furniture Store For The Unexpected

Furniture World Magazine

by Tom Houck Dan’s last three days were like a bad dream. His best friend and fellow entrepreneur, John, was killed instantly in a horrible auto accident. Dan spent the 72 hours following the tragedy consoling the widow, comforting the kids, and trying to determine what assets John had, where they were, and what to do about the business, its employees, and customers. Every business owner owes it to his or her family, employees and customers to create a plan for the “What If”. If John had been adequately prepared, he would have provided written guidance. Without it, his spouse, children, employees, and professional advisors had no clue where to locate financial assets or how to access them. When someone dies unexpectedly, there are immediate demands for cash for the funeral, and day-to-day bills. Business owners and their professional advisors need to work as a team to develop a “What if?” plan, which would allow everyone involved to know exactly what to do and how to proceed. Unfortunately, most people tend to have a mindset of invincibility, and refuse to take the time to prepare their loved ones for their untimely departure. A business left hanging From what Dan could ascertain, John had no life insurance, and no written plans for handling the business in case of his demise. He had all kinds of equipment leases, business loans, and vehicles that he had personally guaranteed. When he passed away, these debts became immediately payable, and the creditors were serious about collecting. Other than the business, John’s biggest asset was his home, followed by some modest retirement and college savings accounts. Since John was a hands-on entrepreneur, the main buyer and salesperson at his store, business immediately started to decline. Shortly after the funeral, John’s General Manager contacted Dan. He told him that, in order to protect his family, he was accepting a position with another company. Things continued to spiral, until in a matter of weeks, the only remnant of John’s business was the inventory and equipment. In order to turn those assets into cash, they would need to be auctioned off to the highest bidder. Unfortunately, this scenario is more the rule than the exception. Many a home could have been saved, a college education funded, and a widow able to stay home and see to the children if the entrepreneur had, at some point, forced himself to ask the simple question—“What if?” Wake-up call Dan knew that the time had come to stop procrastinating. A business advisor had approached him several times during the last 10 years about creating a “What if?” plan. He told him how important this preparation was, but Dan thought that this guy was trying to sell him life insurance, or some other financial product that he wasn’t interested in. Now, after losing his best friend, reality slapped him hard in the face, and he knew it was time to do the right thing to take care of his family. To create a “What if?” plan, Dan’s advisor gave him a series of exercises, which included important questions that needed answers. First, they discussed what would happen to the business if anything happened to Dan unexpectedly. They reviewed: Which professional advisors should be contacted immediately. Which employees would be critical to retain in order to keep the business’s value intact for six months. What additional duties would each of these employees be responsible for. What type of bonus should the employees receive for staying on through this critical period. Who would be a good potential buyer after the smoke cleared. How the business should be priced. How should the deal be structured to protect his family. Next, they looked at what would happen financially to Dan’s family if the unthinkable happened suddenly. They reviewed: All loans, leases, and other obligations that Dan personally guaranteed for the business. How much income his family needed to live on each year. Where he stood regarding college funding for his children. The amount of personal debt (including mortgage, credit card debt, and car loans) that he had outstanding. The amount of cash flow that would be needed to keep the company going for six to 12 months, and support the family over the same time period. His insurance coverage. Creating an action plan When Dan completed the exercises, he asked his attorney, CPA, CFP®, and business advisor to meet as a team. He reviewed the results from the exercises, and asked them to work together to develop a written plan to ensure that his wishes would be carried out if something unexpected should happen to him. He also purchased an inexpensive term life insurance policy to cover every dime of such a financial impact in case he died. Fortunately, Dan hasn’t had to enact his “What if?” plan. He sleeps soundly knowing that his family is covered if anything ever happens to him. About the Author: Thomas E. Houck, CPA, CFP®, is a speaker, author and consultant who’s program, "Your CFO Advantage™" has helped numerous business owners grow their businesses, reduce their taxes and lower their stress level. His book, “The Top 10 Mistakes Business Owners Make (and how to fix them) ™” helps business owners develop strategies to lead a better life by running a better business. For more information you can visit Tom’s website at www.heritagebusinesssolutions.com