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A Continuity Plan Ensures Your Company and Legacy Live On Forever

B&C Construction Services - Construction Accounting and Finanical Services - Syracuse NY

This is the third in a five-part series brought to you by Bob Teska, CPA, Partner-in-Charge of Construction Services, and Mike Tresidder, Director of Surety for Insurance Office of America.

Insurance Office of America

Not Another COVID-19 Article: Think You're Immortal?

The COVID-19 crisis has changed every aspect of our lives, from how we work, interact in public, socialize and stay connected – nothing has been untouched. In a continuation of our conversation this article delves into immortality and the renewed focus on continuity planning.

If you missed our previous articles, you can access below:

Part 1: Where’s my bond, Where’s my financial statement?

Part 2: Contractor or Day Trader?

Bob's Comments from a CPA's Perspective

You can see the question coming like a slow pitch over the center of the plate on a perfect summer day. It is the same every year: your annual review with your surety.

You have just finished reviewing the year-end results. He looks at you and says, “Have you made any progress on your continuity plan?”

You reach for “Old Faithful” – the pivot. You say, “We certainly have, let me tell you about this large project we want to bid…” (gets ‘em every time).

The Surety interrupts, “We can come back to the new project, I’d like to discuss continuity now.”


Undeterred, you steady yourself … adjust your stance and lead with, “You know, my dad came into work every day until he was 85. Longevity runs in my family.”

To which the Surety replies, “Longevity is not a plan. What would you do if you were hit by a bus?”


A little shaken, you dust yourself off and decide to pull out the “tried and true” attorney smoke screen. With all the confidence of a slugger with a .400 batting average standing at the plate with a 3–2 count, you say, “My attorney is working on a draft of a plan. I will get you a copy when it is complete.” (Evoking the attorney always works).

Looking at you through the steely eyes of a 9th inning World Series closer, the Surety calmly says, “Let’s call your attorney now and get a verbal summary for my file notes.”

... STRIKE 3 – YOU’RE OUT!!!

In its simplest form, continuity can be defined as something that is “unbroken” or “consistent existence.” In a normal business environment, sureties are concerned with business continuity. However, in the current environment that is ripe with uncertainty, sureties will have a laser focus on business continuity.

It may be beneficial to take a step back and look at why a surety is so concerned about continuity:

  • The surety guarantees the contractor will complete any and all projects that they have provided bonds for. He’s Uncle Vinny, and you don’t want him to show up on your doorstep with a baseball bat looking to collect. 
  • Any transfer in ownership can have a significant impact on the equity and liquidity of a contractor’s balance sheet. A disorderly transfer can sink an otherwise strong contractor.

In its simplest form, a continuity plan can consist of a Completion Agreement.  This is usually a one-page document that identifies who would complete the open jobs if the owner of the company was to pass away or become disabled. Typically, this would be one of the other owners of the company or a key employee. As the company grows and evolves, so should the continuity plan.

Eventually the continuity plan would become part of the succession plan of the company and an integral part of the business owner’s estate plan. A continuity plan can take on many forms. A few examples are listed below:

A properly executed buy-sell agreement between owners of a company.

  • The agreement would be funded by life insurance owned by the company, and allow the company to purchase the ownership interest of a company from the estate of the deceased owner for a predetermined value. This protects the remaining owners of the company from becoming partners with a spouse of a deceased owner that may not know anything about the construction industry. 
  • Funding the buyout with life insurance provides the liquidity needed for the company to make the purchase without straining the working capital needed for operations and to support a bond program. 
  • Lastly, having an agreed upon value or process for determining a value (such as a third-party valuation) eliminates some of the ambiguity that could lead to costly litigation.

An agreement to sell the company to one or multiple key employees.

  • This type of agreement is best to be completed over time where the current owner backs away gradually as the new owners take more control.
  • Typically, the new owners do not have sufficient personal capital to purchase the company outright. As a result, the current owner finances the deal for 5–15 years. However, the liability owed to the old owner can negatively affect working capital and hurt operational cash flow of the company. The terms of such a deal have to be structured in such a way that the company has enough financial flexibility to meet the erratic nature of the construction industry.

Passing the company to one or more children.

  • Depending on the wealth accumulated by the business owner, this can be done through a sale or by gift, or a combination of both.
  • A sale is often agreed to at a discount compared to what a third party might pay for a company. However, I have seen instances where a premium was demanded by the exiting parent and the resulting stress placed on the balance sheet of the company brought the contractor (and Thanksgiving dinner) to ruin.
  • Passing the company, even part of it, by gift can be a beneficial part of an estate plan. The details are beyond the scope of this article. 

Continuity planning, and by extension succession and estate planning, are not topics that most business owners like to discuss. In my experience, contractors have the largest aversion to these topics.

I don’t know if it is because they are just used to taking risk, don’t believe they will ever die or are just busier than other business owners. What I do know is that a properly executed plan that ensures the continued success of the company and provides for the welfare of the contractor’s family takes time to put together. Rome wasn’t built in a day and neither will your continuity plan. If you want something that stands through time like the walls of the Coliseum, you need to spend ample amount of time on your continuity plan and modify it as situations in your life change.

Mike's Response from a Surety Perspective

Mike Tresidder
Michael Tresidder, Director of Surety


I’m not quite sure how I feel about the baseball analogy (being a former lacrosse player), but your points are well taken. Continuity is a quintessential surety underwriting topic. From day one in the life of a young underwriter, the critical importance of continuity and what could happen to a client’s business in a worst-case scenario is cemented into your mind.

The topic can be a very difficult one to discuss with a client. It can also be any easy one “to run out of time” to cover during a meeting.

Entrepreneurs take great pride and ownership in what they have built. They often don’t want to imagine or discuss the idea of no longer being involved in their business. Most sureties have continuity as a major issue to cover during their annual review with clients. Historically, this may have been a “copy and paste” or “to be covered in next year’s meeting” action item. However, this could be earmarked as a “needs to be addressed now” underwriting item (specifically in scenarios where there is no plan and the owner is a COVID-19 higher risk individual).

I have to imagine the broader continuity topic (not only covering the “what if” with owners) may also be on many contractors minds during these times with key employees, crews, shifts, etc. This could actually be an ideal time to discuss overall business continuity. I can’t help but comment on Uncle Vinny as I’m sure many surety professionals might take exception to the reference. However, no surety wants to be in the position of having to deal with the aftermath of a continuity situation (especially one in which no formalized plan was in-place).

Regarding the “agreement to sell the company to one or multiple key employees and/or to children”, here are a couple of points worth noting:

  • If the outgoing owner(s) hold the note to the company/new owner(s), a subordination agreement is a common surety legal document that can be used. This will allow for the surety underwriter to analyze and consider the long-term portion of the note as equity or net worth (helping bolster the surety case).
  • A New Co.–Old Co. can often be a successful transition method for both owners and the surety involved. This utilizes the experience, capacity, and financial strength of the old company while building the new company’s track record and balance sheet over time.  
  • Bank leveraged sales are typically difficult for surety companies to support.
  • Communicate and involve your surety agent and underwriter from the onset as to avoid potential surprises in future surety support.

I would be remiss if I didn’t mention an Employee Stock Ownership Plan or ESOP (considered a surety 4-letter word by many) as a potential continuity option. There are many firms that successfully go this route when transitioning ownership of their business. However, we could cover ESOPs as an entire topic on its own. Plus, there are many characteristics needed to successfully transition a business via ESOP that make it difficult for many closely held construction companies.

In closing, I could not agree with Bob more on the overall importance of continuity during these great times of uncertainty. 

The links below will allow you to view samples of the documents discussed in this article. They are meant to be examples only. Consult your legal professional before entering into any agreement related to your business.

Documents Discussed in Article:

… To Be Continued. Click here for part four in this five-part series.

Michael Tresidder is the Director of Surety at Insurance Office of America. Contact Mike at (315) 728-3926 or

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