People who own a business have accepted risk. Lots of risk. Some of it is specific to that business, while other risks are systemic. Risk is always there and managing it is an after thought for many.
Business risk is more obvious to many. The action of competitors, the effects of changing interest rates, the price of materials, the exchange rate, the possibility of key employees leaving, lease renewals, the price of automation, foreign goods, the price of transportation, wage rates, government regulation, a network hack, theft of proprietary technology, maybe a fire.
All of these are routinely considered and action plans put in place to neutralize or avoid them.
Systemic risks are routinely given lip service.
Human performance affects outcomes. Businesses are a mixture of physical things, and human skills, effort and knowledge. There are systemic factors that affect human performance.
When owners alone know all the details of the business, the business can be no better than they are. What happens if they are not at their best? Indecision and inability to act decisively will doom it.
There are two defenses. Depth and money. Depth because others can take over the duties of the disabled or dead owner. Money because it can buy solutions to otherwise unsolvable problems or it can hire someone with the skills to replace the owner.
Some depth is not costly and for the employees involved, it is motivating. Pay attention to that opportunity. “Deep depth” as Yogi calls it, is much more costly, possibly not affordable. It is very expensive to hire, train and continue to pay every clone.
Money is available for some contingencies. Certainly insurance will help with a death or with a disability. It is cheaper than having a clone because there is a possibility, even a probability, that nothing will happen to you. Needing money is never a problem when you have a way to make the deposit that will cover the checks.
Expertise can sometimes be applied with a power of attorney that allows the business to operate smoothly for a short time.
Other possibilities require other methods. For these you should have agreements, build a reserve or create lines of credit that will deal with the needs. Divorce is an increasingly common problem. Even an illness in the family may distract the owner and reserves will be helpful. Children, parents, siblings all can reduce the owner’s ability to run the business successfully.
The business requires some thought to protect it from all obstacles. Do not stop with ones that are obviously business decisions. Pay attention to the ones that are outside the business but which will affect your effective input.
There is an old aphorism. “Look after the business and it will look after you.”
A global examination of risks is a necessary part of the looking after.
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.