How to prepare for the death of a small business owner with a “Bus Plan”
When I was a sophomore in college my dad woke me up one morning with a phone call.
“Did you hear?”
“I’m not even awake, hear what?”
My dad never stammers.
I have no idea what I said after that. My body was overwhelmed with confusion, denial and emotion.
It didn’t make any sense.
My best friend since kindergarten’s dad had died. He was in his early 50’s.
He walked outside to get the dog and fell over. His wife was a nurse anesthetis and there was nothing to be done.
My friend called a bit later.
“Did you hear.”
“Yeah, I’m on my way home”
I was at college 6 hours from where he and I grew up in the same neighborhood.
My friend’s dad had sold his business a few years prior so his wife, 2 sons in college, and daughter in high school didn’t have to upset their lives to step in to help with it.
Over the last 5 years my business has helped about 70 small businesses scientifically improve their online lead generation with PPC, CRO, and websites. One of our very first customers died unexpectedly a few years ago. His wife had to step in, take over, learn the business, and she eventually sold it.
On a daily basis, small business owners die or get hurt and can’t work.
Ben Feldman, who at his peak sold more insurance by himself than 1500 of the 1800 insurance agencies in America, used to say,
“When you walk out of life, your insurance money walks in for your family.”
His carefully chosen wording helps illustrate how a small business owner can’t shirk his responsibilities to his family, the families of his team, or his customers when he unexpectedly “walks out on life.”
If you’re a small business owner with at least 5 team members, you NEED a “What-if-I-get-hit-by-a-bus-tomorrow” Plan. (Smaller businesses are likely going to dissolve without the owner but one once you have a stable, profitable enterprise, create your plan.)
There are 4 huge benefits to a Bus Plan:
- It ensures all the stakeholders in your business are taken care of when you wake up dead one morning.
- It increases the value of your business by about 1x multiple.
- It frees you up to focus on growth and acquisitions or, if you enjoy working IN your business, it helps you to become more profitable.
- It allows you to take a real, I-don’t-have-to-put-out-any-fires-while-out-of-the-office, vacation.
Brad Sugars defines a business as,
“A commercial, profitable enterprise that runs without me.”
Unless you have a “Bus Plan” in place, the business can’t run without you.
Additionally, if you ever need to sell your business, show a broker your bus plan and often the multiple for your business will increase by 1 fold.
In real numbers, if your business generates $150k in cashflow and the industry norm is 2-4x cashflow, you’ll often end up around 3x or $450k for a sale price. However, a bus plan will help push your valuation to the higher end of 4x or $600k.
In other words, executing a solid plan for your business to keep running after you wake up dead can increase its value by 33%.
This is because a bus plan proves that your business isn’t dependent on you which reduces the risk for the buyer and helps her get a more predictable return on her investment in your business.
That, of course, assumes you can even sell your business without a bus plan. Up to 4 out of 5 businesses that go on the market never sell.
It also has the hidden benefit of forcing you to systematize your business like Michael Gerber teaches you how to do in The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It and Sam Carpenter obsesses over in Work the System.
A systematized business allows a new owner to easily learn to run it and then frees him up to focus on growth to get a faster ROI – which makes the business more attractive and valuable.
How to create your Bus Plan
- List out everything you do as an owner.
- Indicate who can take over each responsibility and what software, tools, or outside vendors they will need to work with for each one.
- Prepare emails to each of the following:
- Your customers to explain what will happen now.
- Your team members to explain that you prepared for this because you wanted to make sure they can continue to support their families and customers.
- Your family because they need to understand you prepared for this plan.
- Go through a test run.
To save you the hours it took me, add a comment at the bottom and, once I get a few comments, I’ll make my Bus Plan cheat sheet available for you.
Step 3 is the hardest.
There’s something a bit unsettling about writing emails to people as your dead self.
But it’s absolutely necessary because, it forces you to think through what you will want to say to assure them their livelihood and families will continue to be taken care of.
Obviously, to take the time to write out these letters ahead of time demonstrates to your team and customers how much you truly appreciate them.
Your test run will look like this:
- Review with your team exactly what their new responsibilities will be. Create the necessary How To’s and instructional videos to train them.
- Go off the grid for a week. Let someone else check your emails and voicemail (and hand over your cell phone if it’s business only.) You certainly can’t tell your clients you’re pretending the owner is dead, so allow your team to contact you via your personal cell if there is a true emergency.
- Have your team keep track of things they couldn’t do or had a hard time completing and send you a list at the end of the week. Address all of those issues.
- Go off the grid for a second week.
- Rinse and repeat annually.
Don’t forget to update your Bus Plan annually.
Set a reminder on your calendar or have your annual update coincide with your insurance renewals.
A few quick tips:
- Review your plan with your accountant and lawyer. Often it may require a buy-sell agreement where a partner, key team members, or a family member will buy your business from your spouse at your death. This requires professional legal and tax planning help.
- Have adequate insurance. If your family isn’t going to have your income ever again, an insurance policy is crucial. You have car insurance, fire insurance, and health insurance even though you may never total your car, have your house burn down, or get cancer. You will “walk out on life” and you can’t predict when. Get life insurance.
- Review the plan with your spouse and adult children. No one wants to talk about what will happen when you die, but it’s necessary. You don’t have to like it. You do have to do it.
Creating your Bus Plan may be the quickest way to increase the value of your business, ensure a great vacation, and show your team members and customers how much they mean to you.
To your long and prosperous life,