Business disruptions can strike at any time and interfere with the flow of business.
In California, the earthquake in 1989, riots following the Rodney King verdict in 1992, and even last year’s wildfires wreaked havoc on small business operations. That doesn’t include the business owners who had to take time away from operations due to health issues, or family emergencies.
The question is, will your business survive a natural disaster or disruption?
Structurally, natural disasters and disruptions can wreak havoc on buildings, merchandise and equipment — all of which will take organization to get sorted and rebuilt/replaced so that business can resume again.
Businesses also can suffer behind the scenes with owed rent payments, taxes, invoices, etc. If a business owner is cut off from communications or is spending time and energy sorting his personal life due to the disaster or health issue, the business can be negatively impacted.
A small business can go under quickly if bills aren’t paid, negotiations that were underway don’t get finalized, or no one is available to open the doors. Having a backup plan for those “what if” scenarios can come in handy.
A good backup plan includes researching business interruption insurance, setting up buy-sell agreements and finally, naming an agent through a power of attorney (POA) who would be able to continue running a business while the owner is out of communications or unable to conduct business.
Some considerations for this person include:
Trustworthiness. Your POA agreement will designate how much power they have to run your business. As this person will be the face of your company when you are away, you want to choose someone you have faith will follow your vision for the company.
Proximity to your business. When it’s a natural disaster situation, it may be better for your POA to be located away from your company otherwise they may also be affected negating the effectiveness of the appointment. However, you don’t want your POA too far away that it takes them too much time to be able to get the business running again.
Familiarity with your business operations. Having a POA who is aware of your products and services, as well as the vendors you do business with can make a huge difference in how smoothly they are able to run things in your absence. Business owners should discuss business operations with their appointees on a regular basis to keep them informed of important matters.
When working with an attorney to draft the POA agreement, there are two considerations a business owner should deliberate. The issues are how much authority to give the person acting as agent and how it would be determined if and when the agent needs to step in. Consider whether you want your appointee to pay bills and keep the business running during open hours, or do you want them to also be able to make business operation decisions like handling legal issues, contract negotiations and hiring?
It’s hard for business owners to give operating powers away, but when the unexpected strikes a family, having a POA agreement established can certainly make a difference as to whether the business succeeds or fails completely.
Setting up a POA for your business requires due diligence, but having someone able to fill in as backup may prevent the business from folding, and certainly will ease the disruption of operations.
Jason Whong is a senior wealth planner with U.S. Bank Private Wealth Management.