Solo-preneurs – those business owners who run their business entirely on their own – are often so busy running their business that they give scant regard to what might happen if they suddenly become ill, or are badly injured, or even die. The reality is that because there is often no-one who can swiftly take over the reins of the business, the business can collapse, affecting clients and severely impacting the ability of the business to survive.
This article explores the risks inherent when things don’t go according to plan and the reasons why every solo-preneur should develop a succession plan, even if they are young and think they are invincible.
The risks of not having a succession plan for solo-preneurs
Businesses run by solo-preneurs, by their very definition, do not depend on other partners or staff to help run the business. Solo-preneurs have usually opted to run their business entirely on their own. Although there are benefits to operating a business on your own, it does mean that no-one else, unless this is planned for, will have the knowledge, authority or access which would be necessary to keep things running if for whatever reason, the business owner cannot continue to operate the business.
Immediate risks inherent when the business suddenly comes to a halt. Even if the business is only temporarily paused, this can still cause chaos which would unlikely to occur in any other business without a single owner operator. The solution is to develop an effective succession plan which involves individuals who can be trusted to take over the running of the business, communicate with customers and clients, maintain the business’s value and at some point close the business down in an orderly manner or maintain the operation of the business in as normal manner as possible until the owner-operator can take over again.
Why digital assets take on such importance in a solo operated enterprise
Many, if not most solo-preneurs rely on their digital assets. In fact, many businesses run by solo-entrepreneurs may operate entirely online.
The more the business is built around an online presence, the more vulnerable it is to disruption if the solo-preneur is incapacitated. In effect, the business comes to an immediate halt as no-one else will have access to the many components of the system the business has been built around.
Even if the solo-preneur has friends and family who are aware of the ongoing nature of the business it would not be prudent to expect that anyone else could have easy or any access to all these online accounts. Most online platforms have strict privacy and safety protocols which preclude recovery by anyone except the solo-preneur unless a plan had been put in place so that access could be made available in an emergency situation. This is what effective succession plans attempt to do.
Steps needed for a successful succession plan
The following steps could be taken to ensure a successful succession strategy:
1. Create an inventory of digital assets
All important digital assets should be itemized in an inventory and a password manager communicated to a trusted individual so that aspects of the business that depend on accessing online accounts can continue. The inventory should be kept up to date and secured safely, with knowledge that the person trusted to take over in an emergency can do so.
2. Appoint someone who can be trusted to take over if necessary
At least one trusted person should be appointed who can keep the business going while the owner-operator is incapacitated and, if necessary, wind the business down in an organized way. This individual could be any of the following:
- a business manager,
- a business mentor,
- a lawyer or accountant,
- a spouse or family member,
- a trusted colleague.
The individual given this role would not necessarily be expected to run the business as normal on a permanent basis, but would still have the skills and knowledge to contact clients, manage issues that are of immediate importance, safeguard business assets and oversee selling the business, or transitioning it to a more stable operating basis, whatever seems necessary.
As in succession planning for an estate, the trusted individual must have the legal authority to take up their role.
This could involve any of the following depending on what seems the most appropriate:
- access permissions,
- an enduring power of attorney,
- business authority documentation,
- executor provisions in a will,
- written instructions.
Legal authority would be required for any trusted individual to carry out financial transactions, such as access bank accounts, deal with clients and/or digital service providers.
3. Review existing client contracts and provide protection for them
Client contracts should be reviewed by the solo-preneur as clients may decide to terminate their agreements or even request compensation if the business owner becomes incapacitated. Contracts may be devised to include provisions that accommodate for business cessation or incapacitation of the owner.
4. Ensure you have business continuity clauses
Clear communication can help to maintain business continuity when formulating new client contracts. Contract provisions may include:
- data transfer protocols;
- notice procedures;
- refund arrangements;
- temporary suspension rights; and
- the right to appoint a replacement contractor.
5. Document important business procedures
Instead of keeping critical information in their heads, business procedures should be recorded and documented so that it can be easily accessed in the event that incapacitation occurs. Written documentation could include any combination of the following:
- billing procedures,
- client onboarding,
- daily operations,
- marketing systems,
- project workflows,
- software instructions,
- supplier contacts,
- tax obligations.
6.Take out sufficient insurance protection
Financial protection insurance should be part of an effective succession plan. Insurance protection gives the individual or individuals who have been entrusted with overseeing the business if the owner becomes incapacitated breathing space for managing the transition to a more orderly caretaking role.
7. Communicate your plan to others
A succession plan will only work if it has been communicated adequately with the trusted individuals who have the role of managing the business in a period of incapacitation. The trustees should be aware of what they should do in the immediate aftermath of incapacitation, how to access emergency instructions, where important documents are stored including the inventory of digital assets, who are the main clients and what other professional contacts should be contacted. It is wise to discuss your succession plan with your attorney as well as the individual(s) entrusted with managing the business in times of incapacitation.