It was a story that could make hearts sink. A 30-year-old Canadian cryptocurrency founder died suddenly, without leaving passwords behind, essentially locking all his investors out of their assets.

Admittedly, the story of Quadriga founder Gerald Cotten is an extreme case. But every day, businesses can easily find themselves in a world of hurt because the much-needed passwords, accounts, financial information, policies, and more are not readily available if the company owner fails to properly plan for his or her demise or absence. 

Simply put, every business should have a contingency plan. Just as essential as a crisis communications plan or a cybersecurity plan, business owners must plan how to keep the business running if they should become severely ill or disabled, or die.

This is important for founders of any age (note the 30-year-old cryptocurrency exchange founder) and for businesses of any size. From the mom-and-pop dry cleaner to a closely held, large manufacturing firm, think how unfortunate it would be if a business had to close after the owner is gone or disabled, just because of poor planning.

A peek into a contingency plan

Contingency plans should have several elements. Think of them like you would an estate plan. If it’s a family or closely held business, the plan should include the owner’s goals, objectives, and wishes for the business. Does the owner want the business to stay in the family, or should the family sell? Who would manage the business in the owner’s absence? These individuals should be named specifically. Are they ready to step up and serve? Have they been trained? Is there a plan to develop leaders? How will their skills be supplemented until they are prepared to take over the top leadership spots?

Who are the key advisors to the business — the accountant, attorney, financial advisors, insurance brokers, and any other consultants regularly used by the business to help it weather the change in leadership?

Is there a central spot where those left behind can find important/confidential information such as bank accounts, insurance policies, wills, safe deposit boxes, and all the passwords needed to access digital accounts? It may be in someone’s head or in a password-protected digital storage system. But who has access to that?

The contingency plan could also include a shareholder buy/sell agreement, which could prevent a fire sale if the owner dies suddenly.

Here’s one example I can share to illustrate the importance of such a plan: When business owner Mr. A suddenly passed away, his sibling took over. Then the sibling suddenly passed away as well, leaving a third sibling to reluctantly take over the business. The surviving sibling (let’s call him the SS) scrambled to find data about the business and keep it running. The rest of the family was distraught, not knowing what the future would hold. The SS didn’t want the possibility of his sudden death or disability to severely impact the business, his spouse, and his children in the same manner. So he created a plan for the business going forward. As his advisors, we interviewed key stakeholders, including SS’s spouse and children and key business executives. We asked what their wishes were for the business as well as their role in the future. 

SS had specific wishes as to whom should own stock in the business and how that ownership would be transferred to the next generation. During these discussions, it became clear that a shareholder agreement must be prepared to document and formalize SS’s wishes for stock ownership. We put the contingency plan on hold while we worked with SS to clarify his ownership wishes and formalize them in a written shareholder agreement drafted by an attorney. With the shareholder agreement in place, SS has begun to transfer shares of the business to his children and is now focusing on documenting a contingency plan to address the big question of how the business would function if SS couldn’t show up tomorrow. 

If something unexpected should happen to this business owner, the business will survive, and the heirs will be prepared. Is your business prepared for the unexpected as well? If not, it’s time to make a plan.