What is an Emergency Management Transition Plan?

Businesses and their owners often have a number of different kinds of written plans, including budgets, project or product plans, strategic business plans, estate plans, personal financial plans, insurance plans and disaster recovery plans relating to recovery from fires, floods and other natural and man-made disasters. However, most owners do not have a written emergency management transition plan (EMT Plan) for their businesses.

A written EMT plan addresses how the business should be managed in the short term following an owner’s sudden illness or death. The benefit of having such a plan in writing is that the family members and key employees who are left to run the business will know the owner’s intent and will not have to speculate and be distracted during a very stressful time trying to figure out the owner’s wishes.

Some of the issues that should be addressed in an EMT Plan are:

  1. Who should serve as president of company in the owner’s absence? Someone needs to immediately take charge of the continuing day to day operations of the business.
  2. Who should be involved in determining key issues related to direction of the company, and how should that input be organized? Having the right members on the Board of Directors of company is essential. Consideration should be given to engaging one or more independent outside directors now who can become familiar with the business operations and would then be in position to immediately support the new president and other key employees if something happens to the current owner.
  3. What are the most important principles and key success factors relating to the operation of the business that should be continued?
  4. How should the key employees be compensated and otherwise encouraged to stay with the business?
  5. What are the foreseeable cash needs of the business and the sources of liquidity available to meet them?
  6. If it makes sense to sell the business, how should the business be positioned to pursue that strategy?
  7. Who are the owner’s trusted advisers (CPA, attorney, financial adviser, insurance agent, banker, business consultant, etc.) and what is their contact information.
  8. What is the location or locations of important documents, assets and other information, including, passwords, safety deposit boxes, insurance policies, contracts, estate planning documents, etc.

The immediate focus of an EMT plan is for the owner to recommend a structure intended to continue profitable operations until a permanent business transition can be implemented.

The EMT plan should be reviewed and updated annually. Also the plan may require changes to the governing documents of the legal business entities and amendment of the owner’s estate planning documents, such as wills, trusts and powers of attorney.

Questions Every Business Must Ask

Q. Has your business recently reviewed its legal structure to determine whether it is set up in the most advantageous manner for legal and tax purposes, considering recent developments and changes in the law?

Q. Do the owners of your business have a current, updated buy-sell agreement which controls how ownership interests in the business are to be transferred in the event of an owner’s death, disability or termination of employment?

Q. Have the owners of your business developed a succession plan to define how ownership and authority will transition upon the death or retirement of the present owners?

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