Essential Business Continuity Planning Strategies for Business Owners

In today’s rapidly changing environment, business continuity planning has become a strategic necessity, considering recent legal developments such as the 2024 Connelly v. United States Supreme Court decision. This case reshaped how life insurance is treated in business valuations and heightened awareness around how buy-sell agreements should be structured, valued, and funded.

A comprehensive business continuity plan helps preserve the stability of ownership, operations, and financial integrity in the face of unexpected events, such as the death, disability, or departure of a key owner. This article outlines the key considerations for business owners and provides guidance on how to proactively develop their business continuity plan.

Why Buy-Sell Agreements Are Critical for Business Continuity

For businesses with multiple owners, a buy-sell agreement remains one of the most vital legal documents they will ever sign. The agreement provides a defined structure for ownership transfers upon a triggering event  such as death, disability, retirement, termination, divorce, or even a dispute  by outlining valuation methods, purchase terms, and funding strategies.

4 Types of Buy-Sell Agreements for Business Owners

• Stock Redemption or Entity Purchase: The business entity has the first right, or obligation, to purchase a departing or deceased owner’s interest.
• Cross Purchase: An agreement between shareholders providing them the first right, or obligation, to purchase a departing or deceased owner’s interest.
• Hybrid or “Wait-and-See” Agreement: A combination agreement that typically offers the business entity the first right to purchase. If the entity does not choose to exercise their option, the remaining shareholders have the second right of refusal. If neither party exercises their right, the entity will be required to purchase for the agreed-upon value.
• One-Way/Unilateral Agreement: An agreement between an owner and a willing buyer(s) who is most likely a key person and/or family member working in the business.

Key Elements to Include in Buy-Sell Agreements:

• Comprehensive list of triggering events: It is essential to cover all triggering events beyond death and disability that could result in changes of ownership. Triggering events include termination, retirement, bankruptcy, divorce, business disputes, and more.
• Precise valuation method: Identifies a predetermined formula or procedure by which the business will be valued.
• Terms of purchase: The agreement should clearly outline the terms of the purchase. To the extent that borrowing is necessary, it should identify promissory note provisions, including repayment period, interest rate, down payment percentage, and how any life insurance proceeds should be allocated.
• Drag-along provision: This provision forces minority owners to sell their interest if a majority shareholder chooses to sell their stake. It protects a sale from being slowed down if there is a resistant minority owner.
• Tag-along clauses: Unlike drag-along clauses, tag-along clauses protect minority owners by requiring the majority shareholder to allow them to join a sale on the same terms and at the same price.

A periodic review to reflect current valuations, tax law, and owner intentions is essential. In 2025, regular reassessment is even more critical given the potential impact of IRS scrutiny and court interpretations surrounding the impact of life insurance on valuation.

Key Business Continuity Risks Every Owner Must Address

Beyond ownership transition, business continuity planning must address a broader range of risks that can jeopardize a company’s operations and long-term value. Business owners often serve as critical financial anchors, personally guaranteeing bonds, credit lines, lease payments, and other financial obligations. If an owner experiences an unexpected death or incapacity, the company may face immediate financial pressure as lenders and guarantors reevaluate or withdraw their support.

Key financial relationships at risk include:

• Bonding & Bank Financing: Lenders may reevaluate or call loans upon changes in key personnel or ownership, especially in industries that rely on bonding capacity to bid on and obtain work, such as construction.
• Lease Obligations: Leases where the owner has personally guaranteed could face issues with lease renewal if the successor owner’s assets are insufficient to back the guarantee.
• Capital Shortfalls: Founders periodically inject personal capital for tax and liability reasons. The loss of this capital could lead to stalled growth or strain liquidity.
• Loss of Key Talent: The sudden loss of essential team members or owners may significantly impact profitability and operations.
• Loss of Employees and Customers: Staff and client retention can suffer when a clear transition plan is lacking, particularly in times of uncertainty.

Foundational Solutions to Support Effective Business Continuity

Now that the key business continuity risks have been identified, the question becomes: how do you effectively address them? Building a strong continuity foundation requires two essential components that work together to protect your business against unexpected disruptions.

Documenting Your Business Continuity Plan

Every company should maintain a written, up-to-date continuity plan that clearly outlines roles, responsibilities, and procedures for managing unexpected events. Your documented plan should include contact information for key stakeholders, step-by-step procedures for various scenarios, and specific timelines for implementation.

Distribute your plan strategically based on each party’s role and need-to-know basis. Key stakeholders such as banks, bonding agents, attorneys, and CPAs should receive relevant portions that affect their relationship with your business.

Family members and designated successors need access to ownership transition procedures, while employees may only need general communication protocols unless they hold key operational roles. Work with your legal and financial advisors to determine appropriate disclosure levels that protect sensitive information while ensuring effective plan execution.

Review and update your plan annually or when significant business changes occur, such as new ownership structures, major financing arrangements, or changes in key personnel roles.

Business Continuity Insurance: Funding Your Plan

Even the best plans fail without adequate funding, so it’s crucial to identify how continuity issues should be financed. Business continuity insurance is a powerful and efficient funding mechanism that provides immediate liquidity when your business faces unexpected challenges. This funding approach eliminates the need to drain company cash reserves or rely on uncertain financing during already stressful transitions.

The right insurance strategy ensures your continuity plan can be executed quickly and completely, protecting both the business value and the financial security of departing owners’ families.

Three primary types of business continuity insurance provide comprehensive coverage for different aspects of your plan:

• Life & Disability Buy-Out Insurance: Offers discounted funding to co-owners or key personnel to purchase stock under the terms of the buy-sell agreement. Ensures the departing owner’s family receives fair market value without relying on company profits.
• Key Person Insurance: Helps safeguard the company against financial disruption caused by the loss of a critical team member or financial contributor. Policy proceeds can support day-to-day operations, offset lost revenue, and reassure lenders and stakeholders of the company’s ongoing stability.
• “Stay Bonus” Strategies: Offers key employees enhanced compensation guarantees to encourage retention during a leadership transition, thereby minimizing the risk of losing top talent or key customer relationships. Typically funded through life insurance and supported by legal documentation, these bonuses offer elevated pay for 12–18 months or until the business stabilizes, is sold, or liquidated.

Implementing Your Business Continuity Plan

Business continuity is more than risk management t’s a strategic investment in your company’s long-term success and sustainability. From preserving financial stability and bonding capacity to ensuring leadership and ownership transitions proceed smoothly, business continuity planning safeguards the legacy you’ve built.

As legal standards and financial structures evolve, so should your plan. Work with qualified advisors to review your agreements, assess funding adequacy, and ensure your intentions are documented and executable. A well-crafted continuity plan provides confidence to your team, clients,  your business is prepared for whatever comes next.