What Happens When A Founder Dies?

Death seldom adds value.

Forbes recently published an article “What Happens To A Startup When A Founder Dies”  It deals with the untimely death in a traffic accident of George Tang a co-founder of Kitchit.  It serves as a reminder to the rest of us that we are mortal.

Most businesses and many other enterprises have a key spirit in the beginning and often for a long time after.  The loss of the centerpiece is usually insurmountable.  Always if there is just one key person.

With a group of talent, a death frequently ends the group.  Each contributes something unique or probably they don’t need to be there.

We can see how “The Doors” did not last after Jim Morrison died.  Queen and Freddy Mercury went the same route.  Big Brother and the Holding Company disappeared without Janis Joplin.  Even Led Zeppelin called it quits after drummer John Bonham died.

Death costs something when an integral team members is no more.

Sometimes there is no good solution, like with Freddy Mercury and the others.  With businesses it is sometimes possible to buy some time to sort out the shortfall and reassure the employees, banks, suppliers and customers.  Key person life insurance provides cash to buy out a problem.

Some people think that a sound business can continue without the founder.  Sometimes it can, but it is wise to pay attention to several facts.

The business is typically the largest share of the person’s estate and the estate may not want to continue the business with untried leadership.  There will be a need to buy them out if the employees want to go on. At a deep discount usually.

It is unusual for others in the business to know how to do all of the things the owner does.  There will be a steep learning curve to continue.

All owners are in the midst of several things at any time.  New plant, modified production, bank financing for new equipment, family questions, employee development plan, expansion, acquisition and more.  No one ever dies just as every project is complete.

Most of the incomplete tasks can be solved but not without time and money.

Life insurance supplies the money.  As perennial top-of-the-table producer David Cowper used to say, “Life insurance lets you die neat.”

Its price is well less than its value.  Consider it in every business plan.

Contact: don@moneyfyi.com  

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

One Comment on “What Happens When A Founder Dies?

  1. Don’t forget that if the business owner has a Personal Pension Plan and adult children join the business, the assets in the pension plan can transfer on a tax free basis to the children via the pension plan. No insurance premiums required in that case. Just a thought.

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