Top 10 Reasons Businesses Fail: Number 7 – Business is not self-sustaining
What is meant by this statement? There is a scenario that I like to pose to the owner of a business. I ask, “What happens if you get in an accident today when you leave out of here today, don’t die, but you can’t communicate with the business for 6 months? What will the business be like in six month?” Sometimes the owner says, “My spouse (or other family member) can run the company as well as me, so it will be the same”. I immediately ask “don’t you ride in the car together?” That’s when they usually answer the way most owners do…it will be closed or in horrible shape. But it doesn't have to be this way. Recently, I had a series of surgeries over 4 months. While I was out, the only phone calls and texts I received from the office were checking to see how I was doing or if I needed anything. This can make some owners feel unneeded, but the truth of the matter is, it made me proud of all of my employees.
There are several factors that can help eliminate most of the problems if the owner is forced out of the business for an extended time period:
1. There needs to be a written succession plan for the business. The plan needs to be available for implementation in this scenario even though the owner did not pass away. There needs to be a pre-established chain of command in place in case the owner is not available. It needs to have multiple levels. It should name who will be in charge of what functions and who is the ultimate authority in the owner’s absence and who is their backup if they are unavailable. We have succession plans for the President of the US that go at least 16 levels. Why should your business be any different?
2. Cash flow is king. Someone else has to have authority to sign checks and pay bills for the business. This is something that is overlooked in many small businesses. Needless to say, if you can’t trust any of your employees to do this in your absence, you probably have the wrong people working for you anyway. But there is nothing wrong with checks and balances. Set signing authority limits to your biggest monthly bill. If your office rent is $2,500, set the signing limit at $3,000 for one signature or require two signatures for bigger checks. You can set it up according to how comfortable you are. The second very important precaution you should take is to have “Key Person Insurance”. This is not only life insurance, but adds the element of disability insurance. As a business owner, you cannot just buy any disability policy. It must specifically be a “Key Person Insurance” that will give the business a cash infusion if the owner is taken out of the business.
3. Your business has got to have written policies and procedures. Some businesses have certain written documents such as job descriptions, employee handbooks and evaluation forms (if you don’t, you need to get them, fast). Some businesses even have policy and procedure manuals for different areas of the business. But as an owner, you should have a one specifically for you. If something happens to you, your employees should be able to open a book and say, “how would Jane/Joe Owner handle this situation?” It should cover as many possible scenarios as you can imagine.
Written By Ameen Walker