From the Experienced Estate Planning Attorneys of General Counsel, P.C.
A key, however, often overlooked, aspect of maintaining and growing a successful business is planning for the unexpected. If these past few years have taught us anything, it is that things can change overnight, and those changes can have significant impacts on a business. We have all seen many businesses suffer significant financial losses over the course of this pandemic, with many shutting their doors for good. You cannot plan for every possibility—most of us never planned for what we are experiencing now—but proper planning can be the difference between life and death for businesses in some situations.
Aside from pandemic-related interruptions, businesses can also face more typical occurrences, such as medical conditions, accidents, temporary or permanent disabilities, death, weather, and other unplanned interruptions, which can all lead to many struggles for a business owner, including significant actual and potential financial losses. Fortunately, by taking the time to prepare with proper legal planning now, before a potential issue arises, business owners can save themselves a lot of unnecessary stress later on.
What is a Legal Business Contingency Plan and Why Do I Need One?
Legal Business Contingency Planning (“LBCP'') is the process of planning for potential interruptions to regular business operations and developing customized strategic options to keep the business running while experiencing these interruptions. As mentioned above, any number of unexpected circumstances can impact, and even halt, the running of a business. As a business owner, you are pulled in many directions, and it can be hard to find time to plan ahead for potential risks that may never happen. However, absent proper planning, an unexpected medical issue or other business disruption can cause serious unprofitability, and even potentially disrupt a revenue stream, or upset a long standing customer or client so much as to lose their confidence, leading your business to a point of no return after you have spent so much time building your dream. Legal contingency planning is a crucial part of long-term business planning.
This is the first of a multi-part series of articles, which will introduce the idea of Legal Business Contingency Planning and explain why it is an important process for every business owner to undergo. In the next part of this series, we will get into a more detailed explanation of what goes into a legal business contingency plan and things business owners should consider when designing a plan.
Why Do I Need a Business Contingency Plan?
Most people do not like to think about unfortunate things happening to them, but the truth is, sometimes those things do happen. If you are a business owner, what happens if you are in an accident leaving you unconscious for a few days? Could your business continue to run without you? Would your staff know what to do if you did not show up for work? Would your management team know how to close big deals, or would they even know that those deals were in the works and to whom to talk? Does someone have authorization to make withdrawals or deposits for the business account? Is someone authorized to sign documents on your behalf? Does everyone know who is in charge when you are not there? If the answer to any of these questions is “no,” then your business could be at serious risk of financial loss if you are incapacitated for some reason. If you are out for a day, even two, things might be okay. What if you are incapacitated for one week, or two, or even longer?
In a less serious scenario when you are conscious, but stuck in the hospital for a few weeks, there can still be issues if you have not planned for what happens if you cannot be physically present. Although you may still be able to make decisions and monitor things from afar, do the things that require physical presence get done while you are out? If someone else does not have authority to sign documents on your behalf or make transactions from the business account, business can still be delayed in your absence. These delays can have grave consequences, both financially and to your reputation if the wrong client or customer is affected. Even if you can get an attorney on the phone quickly to address some of these issues, that still takes time—time which can cost you and your business.
In the worst-case scenario of your death, what happens to your business? Do you have a succession plan in place? Is there a plan for whether the business should be sold or transferred? While your family is dealing with the traumatic aftermath of mourning your passing, should they have to decide what to do with your business because you did not have a plan in place?
Luckily, all of the scenarios I have mentioned here—and more—can be planned for. Creating a Legal Business Contingency Plan is a straightforward way to protect your business’s bottom line in case of emergency. Having a strategy ready to handle these challenges is essential. Proper planning can help ensure your business keeps running smoothly while you cannot be there and ensures everyone knows their role in the event you are incapacitated. Taking the time to develop and invest in business continuity strategies and plans is an opportunity to protect staff, clients, operations, profits, and your brand. It is important to understand and identify critical processes, gaps, and risks to ensure the organization can develop effective response and recovery plans to address stakeholder expectations.
What is a Legal Business Contingency Plan?
Now that we have established why every business owner should have a business contingency plan in place, let us discuss what the plan actually is and how you get one. What a legal business contingency plan entails is different for every business—and it should be since every business is different. However, the process for creating a legal plan is generally the same for all businesses. When you work with our legal team to create a legal business contingency plan, we will guide you through the following keys steps:
#1. Legal analysis of business operations
During this step, we will consider potential risks and business interruptions and prioritize them. Planning for every possible business disruption can be time consuming. While it is important to plan for those possibilities eventually, it is more important to get a plan in place now. We will discuss and analyze possible disruptive events, and then prioritize those threats based on which ones are most likely to occur and would have the biggest impact on your business. Your planning should start with the most probable business interruptions (such as temporary unavailability or Covid-related issues), and then you can continue to plan for the lower priority threats over time (such as death and/or cyberattacks).
#2. Strategic decision-making analysis
This is where we determine what should happen during each of the interruptions, we discussed in step one. We will look at how each interruption will affect your business and then produce the best solutions for how the business should respond in each scenario. We will walk through what steps would need to be taken to keep up with the day-to-day duties and then create a step-by-step plan, including who will do what and when, and what specific key business partners, third-parties, financial institutions, and/or contracts need to be addressed or accessed to keep business running smoothly in your absence.
#3. Draft and execute legal documents to address contingencies
After you have considered potential risks and decided on solutions, it is time to draft the plan. It is important to set your plans in writing so there are concrete procedures to follow. During this phase we will make sure that in addition to the plan itself, supporting documents are executed granting appropriate authorities to those individuals that will take on additional responsibilities in your absence.
#4. Team meetings to explain the plan
Once we have designed a plan, it is crucial that people involved know their responsibilities and also explain the purpose of your legal plan. If there are authorized signers on accounts, they need to have access to account information and know in what circumstances they should use that authority. Staff should know information such as who is responsible for what; what needs to happen when; and what events trigger different procedures. If staff are not familiar with a plan and prepared for the possibilities, they will not be able to effectively implement it. Business owners should test their plans with both scheduled walk-through training and test scenarios, as well as unplanned simulated emergencies to see if there are gaps in the plan or staff knowledge of and implementation of the plans. Often business owners find their staff welcomes these types of discussions and feel prepared and well led knowing your goal is to keep the business running even in the face of an emergency.
If you would like an analysis of your business and what a contingency plan might look like for you, contact our team today. Attorneys at General Counsel, P.C. are equipped to support businesses of all sizes and take the necessary steps to prepare for an emergency. Our attorneys can guarantee that you will feel more confident about the future of your business after you have made your contingency plan or updated your existing plan.
We would welcome the opportunity to help you navigate the process. Contact us today at 703-556-0411, email firstname.lastname@example.org, and see how we can help you protect yourself and your business!