Business Continuity – Making Sure Your Business Continues if You Don’t!

Featured Blog Post by Dyanne Ross-Hanson, President of Exit Planning Strategies LLC

We are proud to feature this insightful blog from Dyanne Ross-Hanson, a distinguished expert in business continuity and exit planning. As we navigate the complexities of ensuring our businesses thrive today and for generations to come, Dyanne’s expertise offers invaluable guidance. This article is a part of BGM’s ongoing commitment to providing valuable, relevant, and thought-provoking content to our clients.

Most business owners dream about the day they turn over the keys to the corner office and ride off into the sunset with a suitcase full of cash in hand! While this is a pleasant dream, the reality is that some owners may not reach the finish line due to unforeseen circumstances. Business continuity planning is about preserving and protecting the value of your business.

Whether you are a sole entrepreneur or a multiple-owner company, there are four primary issues that every comprehensive business continuity plan should address.

1. Continuity of Business Ownership

In multiple-owner companies, provisions for business continuity are often found in the Shareholders Agreement, otherwise known as a Buy-Sell Agreement. It typically provides for ownership to be transferred upon a “triggering” event, and includes the purchase price/terms, funding options, and other necessary protections.

Important Provisions of Buy-Sell Arrangements:

A well-drafted Buy-Sell Agreement should include the following important provisions:

  • All “triggering” events are covered, not just death/disability. For example, other events causing ownership to potentially change hands include retirement, termination, divorce, bankruptcy, illegal acts, and business disputes.
  • Valuation Method: Variations used to identify company value may include “Book Value,” “Capitalization of Earnings,” “Formula,” “Mutually Agreed Upon Value,” or “Appraisal.”
  • Terms of purchase are identified, i.e., promissory note provisions including period, interest rate, and down payment. Provision for life insurance funding is also commonly included.
  • Drag-along provision: The provision requires that if the majority shareholder chooses to negotiate and sell their stake in the business, minority owners are forced to join the deal. This provision protects majority shareholders by not encumbering a sale because of a resistant minority owner.
  • Tag-along provision: This is the same idea as above except worded to protect a minority investor. A tag-along provision forces the majority shareholder to let the minority shareholder tag along in the sale, at the same terms and price.

Many experts suggest that the Buy-Sell Agreement is one of the most important documents that business owners will ever sign. If the Buy-Sell Agreement is outdated, un-reviewed or focuses on the wrong issues, it may be worse than having no Agreement at all.

2. Loss of Financial Resources

Business owners often represent a principal source of the company’s financial funding, i.e., Bond Guarantees, Line of Credit Guarantees, etc.. A sudden death or incapacity can put enormous pressure on the business.

The following financial relationships could be at risk:

Bank Financing. If the business owners have personally guaranteed the company’s line of credit or permanent financing, a sudden death or departure will likely cause the bank to re-examine its lending relationship with the company. The bank reserves the right to “call” the loan upon a real, or perceived, change in financial stability.

Bonding Capability. Construction companies need, and often rely upon, bonding capacity to bid and obtain much of their work. A business owner’s sudden death will likely cause the bonding company to refuse to extend bonding unless the financial statements of those left behind are as strong as the original owner’s. The inability to secure bonding could mean the demise of the company.

Obligations Under the Lease. If the company leases space or equipment, it is highly likely that the owner has personally guaranteed the lease. While the lessor may be unable to do anything to terminate the lease (provided payments stay current) they may be unlikely to renew the lease without the successor owner’s guarantee, which is backed by personal assets.

3. Loss of Key Talent

Business owners do not think twice about the need to insure their tangible assets, including their building, inventory, equipment, etc. Yet, they often overlook an asset even more valuable to the company’s continued profitability, it’s human capital.

Most businesses, regardless of size, have one or more individuals who significantly contribute to its success. Without them, the business would have a tough time surviving. This often includes the owner(s) along with others who are essential to the company’s profitable operations, including Presidents, Vice Presidents, Project Managers, Division Leaders, Business Development, Operations Manager, Controller, etc.

Like tangible assets, insurance protection can be placed on the life of those key employees. Should an unexpected death/disability occur, coverage provides the company with liquid capital necessary to keep the business running and assure creditors that operations can continue. It can also provide the capital necessary to find and train a suitable replacement.

4. Loss of Employees & Customers

An unfortunate result that often follows the death/disability of a business owner is the potential loss of valuable employees and, with them, the company’s customer base. Valuable employees with the knowledge and skills to run the business in the absence of the business owner are also the most capable of finding alternative employment. Concerned about their future, they might seek positions elsewhere, thus eroding customer loyalty. Without the continued services of these valuable people, the business can falter and is likely to lose value as an ongoing concern.

The solution is referred to as a “Stay Bonus.” A stay bonus is designed to provide valuable employees with a financial incentive to remain with the company following an unexpected death or temporarily disabled owner. It helps to tie valuable employees to the company until the business can be either sold or liquidated, or until the owner can resume his or her responsibilities after a disability.

Business Continuity Solutions

First, it is critical to document Business Continuity instructions and then communicate those instructions to all stakeholders prior to an unexpected interruption. This includes employees, CPAs, attorneys, bankers, bonding companies, vendors, suppliers, spouses, etc.

Once completed, the second most critical step is to address how these business continuity issues will be financed. At their core, they all require cash. The challenge is extracting working capital from the business when the primary source of financial stability is removed from the equation.

The solution is good old-fashion life/disability insurance, which is payable either directly to the company or to an outside entity. The magic of this solution is that the necessary cash is provided (often income tax-free) at exactly the time needed for a fraction of the premium dollars spent. Financial leverage in action!


Business Continuity is a risk that every business owner needs to address. The company’s value is often at stake.

Dyanne Ross-Hanson is President & Founder of Exit Planning Strategies, LLC. A firm dedicated to helping business owners navigate and take control of the most significant financial transaction of their lives, exiting their business. She collaborates with owners and their Advisory Team to educate, evaluate, and formulate an intentional plan for ownership transition. Dyanne is a published author of numerous articles on business exits. She can be reached at or 651.426.0848.




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