It is something no one likes to think about, their own mortality. Business owners are no exception. But when business owners or principals fail to plan for the orderly succession of their business, the results can be devastating to the business, its employees and surviving family members.

The Small Business Administration (SBA) says some owners so closely identify with their ventures that they can't imagine their offspring of long hours and hard work continuing without them. Others believe they're too busy to plan for the day they will leave and consequently put off succession planning until tomorrow.

"But tomorrow may be too late," the SBA warns in a lengthy article about business succession planning that can be found at www.sba.gov/gopher/BusinessDevelopement/SuccessSeries/Vol7/success.txt.

Serious illness, disability or death cart catch a firm by surprise. A crisis such as this brings great upheaval, and it's difficult to make rational decisions in the best interests of a company when emotions are running high. That's why the SBA says a well thought out succession plan - a kind of insurance policy - is essential to the continuation of a business, no matter what its size and structure."

Despite the need, most business owners fail to prepare for a smooth business transition in the event of their death or disability. That may be why only 30% of family-run companies today succeed into the second generation. Only 15% survive into a third generation.

Robert D. "Bobby" Dye Jr., a principal with the Williams Morris Group, P.A., an insurance firm in. Jackson, said business succession planning is widely overlooked despite it being key to the continuation of a business in the event of the death of the owner and key person.

"There are questions about how to survive without a key person running the business," Dye said. "In the worst case scenario, the partner dies and the business goes under because there is not enough cash to run the business with the partner being deceased."

Dye said business succession planning could include determining how to transfer ownership to partners. For nonrelated business owners, life insurance can be used as a way of transferring ownership of the business for business continuation purposes. Other issues are how to distribute ownership to family owners not in the business while other siblings might be involved.

Life insurance is an integral part of business continuation, and can be used to fund buy-sell agreements to transfer ownership to a surviving partner by buying out surviving family owners. Life insurance can also be used to help cover a key employee so the business can continue if that person is lost. Dye said another advantage is that life insurance after death is tax free, while using company profits to fund a buy-out would result in paying 30% to 40% more because of tax liabilities.

While insurance is important, it is only part of the picture. Dye said good business succession planning requires a team effort between an insurance agent, the business owner's accountant and a tax attorney. Dye's company is part of a strategic planning alliance that works with different attorneys and CPAs in Jackson to provide a package deal.

One of those partners is Grantham Poole CPAs. J. Thomas "Tom" Grantham, CPA, CFP, a managing partner with Grantham Poole, said many people make the mistake of thinking that because their business is family owned, business succession planning is not necessary.

"Having family involved may make it even more important than in a situation where the family is not involved," Grantham said. "I think it is vital to have a plan in place. A good team of a CPA, attorney and insurance advisor does give the best fit.

"The time to plan is before the plan is needed because once a death or disability occurs, then it is much more difficult to have a reasonable plan put into place. And you really need the wisdom and experience of the generation who is retiring, so you don't want to lose that by waiting too late to get the plan in place."

Grantham said CPAs are valuable because they are the professionals closest to the types of issues and financial situation of the business. Typically the CPA has worked with the business for many years, and is in a good position to know the opportunities and pitfalls that the business faces. Christopher Magann, financial representative with New England Financial, Jackson, said having written - not oral - agreements between business partners is essential.

"If there is not a written agreement between the business partners, you have a problem because you are going to be dealing with their heirs," Magann said. "The heirs want top dollar for their interest in the company, and will immediately want a settlement of the estate. The surviving partner will want the minimum cost for the business and prompt transfer assets to his name or his and the names of other surviving partners. He would want full control of business and no interference from the partner's surviving spouse."

Without a written agreement between partners, you run the risk of preventing the business from being able to continue. There can be heated conflicts with remaining owners and the deceased's family.

"There can be a lot of unhappiness on all sides, and that is when you start getting into litigation," Magann said. "Without a written agreement, you face possible liquidation of the business to provide fair value to the surviving spouse. A written agreement allows things to go smoothly and, most importantly, you want that written agreement to be funded."

Magann said there are a number of ways to fund the buy out agreement. The surviving partner can take cash out of the business, borrow money from the bank, or pay in installments. But the most cost-effective tool is using either disability or life insurance to cover the cost of the buyout in the event of death.

"Some people take the initial steps to set up an agreement, but it isn't funded,"

Magann said. "That is a mistake. And you should plan not just for death, but disability. If the disability lasts a long time, you want to be able to buy him out."

He recommends working with a competent attorney who understands IRS tax laws so the agreement is done properly, and consulting with a financial planning expert to make sure that the buy-sell agreement is funded not only in death, but also in disability.