Business continuity planning: key-person insurance, buy-sell agreements, and the first thirty days without the founder

• Key-person insurance pays the business, not the family, on the death or disability of a named person; buy-sell cover pays the departing owner's family and funds the remaining owners' purchase of their share.

• PwC's Global Family Business Survey finds that only about a third of family businesses have a robust, documented succession plan, and the insurers' own surveys of small businesses put funded buy-sell agreements at a minority of multi-owner firms.

• The family-business longevity research, from the Williams Group's twenty-year study of 3,250 families to the Family Firm Institute's succession data, finds the same thing: the businesses that survive a succession separated ownership from management before the founder left, and wrote down how the founder decided.

The bank: the founder was the sole signatory, and payroll is Thursday. The customers: three of the largest only ever dealt with her. The staff: nobody knows what she had promised whom. The suppliers, the landlord, the lender whose covenant names her as a key person and gives it the right to call the facility. The co-owner, who now has her spouse as a business partner. The personal guarantees, which her estate now carries. And the decisions: the offer that was on her desk, the hire she was about to make, the price she would never have cut. The first six are logistics and a good continuity plan solves them in a week. The last is judgement, and it does not come back.

Add the revenue that depends on the person, the cost of replacing them (a search fee of a quarter to a third of salary, a premium hire, a year of underperformance), the debt that a lender may call, and the value the business loses in a sale under duress, commonly a third to a half of a fair price. Insurers price it from that arithmetic, and the number surprises most owners: for a founder-led business it is often two to five times annual profit, or five to ten times the person's salary by the rule of thumb the brokers use. Key-person and CEO life insurance sets out the calculation and the tax by country.

The business owns the policy, pays the premium and receives the payout. Whether premiums are deductible and the payout taxable depends on the purpose and the country: revenue purposes (replacing profit) are treated one way, capital purposes (paying debt, buying shares) another, and the United States taxes the payout unless the insured consented in writing and the notice rules of section 101(j) were met. The policy should name what the money is for, and the board should own that decision, not the founder alone, because the founder is the one person who will not be there to explain it.

A buy-sell agreement fixes what happens to an owner's share on death, disability, divorce or departure: who buys, at what price, by what date, funded how. Without one the family inherits shares in a business that cannot pay them out, and the remaining owners inherit a partner they did not choose. Life and disability cover funds it, so the family is paid in cash and the business stays with the people running it. The funding question compares the structures with a worked example, and explains why the 2024 Connelly decision changed the answer for American companies that own the policies themselves.

Ownership and management are different questions with different answers, and the families that survive answer them separately: who owns the shares (often all the children, through a trust) and who runs the company (often one of them, or a professional). The three-circle model, family, ownership, business, is the standard map, and every conflict in a family firm sits at an intersection of two circles: the daughter who works in the business and the son who owns a third of it and does not; the spouse who owns nothing and sits at every dinner. The successor is not always the eldest and is sometimes nobody, in which case the plan is a sale, and the earlier that is admitted the more the family keeps. About a third of family businesses make it to the second generation as family businesses, about a tenth to the third; the rest are sold, merged or closed, and a planned sale in the founder's lifetime is a success, not a failure. How to pass on a family business is the fuller treatment; the tools are compared separately.

Every founder-led business runs on a body of knowledge that is in nobody's manual: which customer to call first, what the margin really is, who can be trusted with a delivery date, when to walk away from a deal, what the company would never do. Firms try to capture it with process documents and succession memos, and the documents are always a year out of date and never answer the question actually being asked. Knowledge-management programmes fail for the same reason: they capture what the founder does, not how the founder decides. What the successor needs is not the manual. It is the founder, asked. How to capture founder knowledge covers the practical methods; the door below covers the one that keeps the founder's own voice.

1. Day one: who tells the staff, the bank and the top ten customers, and what they say. A second signatory already on every account. The lender's relationship manager called before the lender reads it in the paper.

2. Week one: the interim decision-maker named in writing, with authority the board has agreed; payroll and the lender covenant covered by the key-person payout or a facility arranged in advance; the personal guarantees listed.

3. Week two: the buy-sell triggered, the valuation clause applied, the family's position confirmed in writing, the insurer's claim lodged with the death certificate.

4. Week three: the commitments the founder had made, gathered from her calendar, email and the people she promised; honoured or renegotiated openly, with the customers told which.

5. Week four: the decisions on her desk taken, with her recorded judgement in the room where it exists, and the board told which were hers and which are new.

6. Rehearsed once a year, with the founder out of the building for a week and the phone off, which is the only test that finds the sole signatory.