The Importance of Planning Your Business Succession
When you own a business, it may seem impossible to believe that there will come a time when you will no longer be at the reins. However, the reality is that at some point in time, you will either retire or an unexpected illness or even death could change the situation dramatically. Though you may not want to think about these turn of events, it’s vital that you plan for them to ensure the longevity of your business. Meeting with an estate attorney to plan your business succession is one of the most important parts of your business plan. Here are six aspects it should include.
It is recommended that everyone, whether a business owner or not, have a will in place. A will is a document that spells out how you want your assets to be distributed after you die. For a business owner, this includes identifying an executor who takes charge of your assets and disburses them in the way you direct them to and includes all assets relating to your business. Your executor should not only know how and to whom your assets should be given, but they should also know your online bank account information, email account information, and any other password-protected information related to your business.
A trust is similar to a will, but it gives you added protection of bypassing the probate process for any items you place under its ownership. This allows you to transfer assets to heirs or business partners more quickly and privately, a must for business owners. It could also have a big impact on legal fees and estate taxes.
Power of Attorney
Who will make decisions for your business if you are incapacitated? If you do not have a power of attorney, the court will appoint someone to handle your affairs—and it might not be who you would have chosen. Make sure to draw up a power of attorney document with your estate planner so you can name an individual to make the important decisions for you until you can step back in.
Do you have business partners? If so, you must have a buy-sell agreement in place in case one of the owners becomes incapacitated or dies. This agreement lays out a purchase price for the business and each partner’s share and states whether other partners can buy out shares. This agreement can also block certain people from stepping into the business and allow family members to sell your portion if you prefer.
If a business partner should die, it may be difficult for the others to raise enough funds to buy their shares and keep the business going. For this reason, many business partners purchase life insurance plans and name their partners as beneficiaries for the sole purpose of receiving tax-free capital to buy the shares should one of them die.
If you do not have business partners, you need a written succession plan to spell out what you want to happen with your business if you were to die. You should delegate and prepare a successor (after they agree, of course) or lay out a plan of how you want the business sold.
Though you may not want to think about leaving your business, it’s vital that you have a plan in place in case the worst happens. If you would like help with your business succession planning, please reach out to one of our experienced professionals.