Unplanned
Exit Strategies

by Charles H. Van Gorder and Bill Thorogood

Many retailers and manufacturers in the outdoor recreation industry got into their business as a means of getting closer to, and financing participation in the activities they love the most. Retail guiding services provide a means of spending "paid" time in the mountains or on the water. Manufacturers spend endless days designing and testing products borne of their own needs. Those who are the best can enjoy their business and make a living. However, outdoor recreation entails risks which simply cannot be avoided. Many professional push themselves and their equipment to, and beyond, their limits of endurance. Nearly every year there are instances of "unplanned exits" where fatal or disabling accidents force outdoor entrepreneurs out of their business. One of the most publicized examples was Scott Fischer's death on Everest in 1997.

What happens to the business when the owner or other key principal is a victim of his or her own outdoor pursuits? Each of us knows we should have a will to direct what should happen in the event of our death. However, how many of us have actually prepared a suitable will or physician's directive? Most of us have avoided it like the plague; it is not a pleasurable topic and can easily be ignored. If owners treat their business the same way, years of work and a family's entire means of support can disappear. This article is intended to advise you of steps that can be taken to help ensure your business survives, even if you don't.

Prepare a Plan
If you or another key individual were to drop dead tomorrow, who could take over? How much of the crucial knowledge about your company's operation is squirreled away in your mind, totally inaccessible upon your death? The loss of this information can be avoided by giving others operational authority in specific areas of company operations such as finance, marketing, supply, production as well as product design and development.

Correspondence and information on personal contacts should be filed in a manner that would facilitate another person stepping into an established position. The legal and financial records for your company should be kept up-to-date and well-organized. A current "To-Do List" may not be necessary for you to remember what needs to be done, but may be critical for someone else trying to pick up the pieces after your untimely departure - including how you got to where you were and where you were taking the business. Include names, telephone numbers and deadlines. File your old to-do lists so your successor can know what you did in the past and how you did it. Have a plan for keeping the company going. One sample plan follows at the end of this article. If you establish a blueprint for the operation of your company, someone else may have a fighting chance of keeping it going. Without that information, it will likely be a losing battle.

Two of the most common forms of business are partnerships and corporations. In each case, the business can take specific steps to help ensure its viability:      
 
Partnerships
 Partnerships are governed by state law, which may change from state to state. Generally, a partnership is an association of individual partners; new partners cannot be admitted without the consent of all other partners. Upon the death of a partner, the deceased partner's interest may be transferred as personal property, but the recipient does not acquire the right to act as a partner unless the remaining partners consent. Unless the partnership agreement provides otherwise, the recipient may either receive the deceased partner's pro rata share of future partnership profits or be awarded the value of the deceased partner's share of the partnership as a creditor. If the recipient decides to sell the interest of the deceased partner, the partnership has the right of first refusal. Advance planning will ensure the partnership agreement will provide for options in accordance with the desires of the partners, such as a partnership's right to buy the interest of a disabled or deceased partner or the selection of a new partner. A partnership can take out life insurance policies on its partners, thereby providing the partnership with some or all of the funds necessary to purchase the deceased or disabled partner's interest.

Corporations
If your business is a corporation, shares are freely transferable unless restricted by a shareholders' agreement. Without such an agreement, a deceased shareholder's interest is passed onto his or her heirs, to either bring them into active participation in the company or be sold to an outside interest. Either way, if the company is a so-called "close corporation," the remaining original shareholder(s) may find themselves with new shareholders who may challenge established business policy or frustrate decision making if they control a significant percentage of stock. These problems may be avoided through a shareholders' agreement giving existing shareholders the right to purchase shares offered for sale. An agreement may also give the corporation the right to repurchase all shares of stock. This right, combined with a life insurance policy on key persons with the corporation as the designated beneficiary, allows the corporation to control the destiny of shares owned by a deceased or disabled shareholder. 
Conclusion
The tragic death of a business leader is hard enough without having to worry if the company will pass away as well. Advance planning can facilitate the transfer of responsibility to a suitable individual, and provide that person with the information needed to succeed. Appropriate documentation and financial planning can help to ensure the leadership of the company remains in the hands of persons with compatible styles and visions. Similar to a marriage, interpersonal compatibility is essential to the long term success of a business. Shotgun weddings seldom lead to a successful business.

Sample Business Survival Plan
The Plan should include the naming of a "Acting Manager" who would have the authority to keep things going during the short term. This can be done through the corporate bylaws or partnership agreement. The Acting Manager can then implement the Business Survival Plan and serve as the focal point for inquiries concerning the immediate survival of the business.

I. DAMAGE CONTROL (First Week)
This is the most difficult time. Shock has normally struck the organization and its structure is severely shaken. Immediate key elements must be tightly controlled and lines of communication rapidly deployed with a very clear understanding of who is "in charge" now. Key points include:

1. Knowing the amount of the company's cash reserves are where they are located.
2. Put into effect a plan tightly controlling the expenditures of cash reserves, including the designation of limited number of approved check signers.
3. Notify ALL interested persons (owners, employees, customers, suppliers and lenders - "Stakeholders") that business will continue as usual until further notice. Let them know they will be contacted within the next two weeks, enlist their help in keeping the business operating smoothly and encourage them to communicate with the Acting manager.
4. Notify insurance broker/agent and discuss potential insurance proceeds to family members, the company, other owners or debtors.

II.REACHING A SAFE HARBOR (Next 60 Days)
This is the fact-collecting and review period necessary to keep the company operating as smoothly as possible and conveying to all concerned the continued strength of the company.

1. Determine if the company is to continue under current ownership, sold in whole or in part to new owners, or be wound-up and discontinued.
2. Continue to ask for everyone's help and advise interested persons how the surviving family members are doing.
3. Continually review the pending to-do list and review recently completed action items.  Rank order all pending activities in terms of importance and deadlines. Develop a daily calendar of action items to be accomplished. Don't miss crucial meeting days with customers, marketing events, product demos, shows, etc.
4. Develop a short-term cash and operations plan.
5. Address immediate financial and operational problems and contact Stakeholders to keep lines of communication open and to determine if everything is going OK. This will give Stakeholders an opportunity to come forward with any issues.
6. Work closely with professional counsel (legal, tax, marketing, creative, financial) to maintain on-going business, ensuring all necessary procedures are undertaken
7. Near the end of period, notify all Stakeholders of how the company is doing and thank them for their assistance and concern. Enclose personal note from key surviving member.

III.CONTINUE THE JOURNEY (Next 6 Months)
The recovery period has begun, and now it is important to re-review the direction and desires of the owners of the company. It is extremely important at this time that the company does not lose market share, marketing opportunities or allow for competition to make serious inroads as a result of this difficult loss.

1. Continue to review the pending to-do list and review recently completed action items.
2. Implement management succession plan that fits the conversion from the prior owner/president to the new owners/management, as necessary.
3. Develop a long-term cash and operations plan designed to accomplish the agreed-upon business succession and to achieve long-term financial and operational objectives.
4. Maintain close contact with Stakeholders to maintain constant feedback on the progress of the succession plan and to address problems as they occur rather than allowing them to build up undetected over time.

This article was co-written with Bill Thorogood, Bellaire, Texas.

First Published July, 1999