25 Aug Succession Planning: Three questions to ask yourself
Think of the countless hours you have spent building your business – working with clients, researching technology and pulling long hours to build something you believe in. What would happen to that business if you were incapacitated or passed away? It isn’t a fun question to answer but it is an important one.
The sad reality is that without the proper business planning and estate planning documents your family members and business partners may be left guessing about what they should be doing if you are no longer able to work or have passed away. We’ve all heard of businesses being sold off for peanuts or being dissolved because something happened to the owner and no one knew how to keep the business running. Those things really are tragedies that just add to the heartache caused by your absence. Therefore, it is imperative that business leaders protect their hard work, their business partners, their clients and their family by making sure the business can run in their absence.
The first step in building a successful estate plan as a business owner involves looking at your business and developing an exit strategy. An exit plan doesn’t mean that you have to leave the business, but that you have a plan in place for when you are no longer able to work or no longer want to. Ask yourself the following questions:
1. Do I want to sell this business?
2. Do I want to pass the business on to someone in my family?
3. Do I want to create a business that I can run passively?
Depending on your goal for the business, you can make strategic choices to move you toward the goal you select.
If you want to sell the business you need to get work toward making the business appealing to an outside buyer. If you want someone in your family (or close circle) to take over the business then they need to be trained, your processes need to be documented and your financial interest in the business needs to be clear throughout the transition. If you want to run the business passively, you need to build a team, create products and services that are not dependent on you in any way and gradually change your involvement in the business.
It is also important to protect the business if the plan isn’t completely implemented before your involvement ends. This may mean setting aside a reserve fund to cover business overhead for a number of months or purchasing life insurance with the business as a beneficiary. If you are suddenly unable to work in your business, you don’t want to lose the years of effort you have invested or the income your family likely relies upon to survive. Therefore, ensuring that the business can survive financially during any transition is extremely important.
As you can see, making these transitions can take time. The only way to ensure that your business continues after you are no longer involved is to set a goal, make a plan and implement that plan. If you aren’t sure how to build a successful exit strategy for your business, speak to a business law attorney. They can help you understand your choices and can outline the steps you need to take to get to your goal.