By Guest Blogger Megan Martucci.
Small business owners often dedicate extensive time and energy into the success of their business. Unfortunately, with all the responsibilities that come with running a business, preparing a business succession plan is often left to the back-burner until something unexpected happens.
The term “business succession planning” refers to the business strategy in place to pass ownership and leadership roles to appointed successors so that the business continues to operate smoothly and without interruption. With a business succession plan, a business owner is putting individuals in charge to handle the business in their stead or designating the distribution of their business to their heirs. In many ways, a business succession plan is similar to a personal estate plan in which documents are being prepared to ease the difficulties that may arise in situations of incapacity and death. Similarly too, it is an issue many people do not want to think about so such planning is pushed off. However, failing to properly establish a business succession plan can result in a myriad of problems down the road.
With the unpredictability of life, there is always the potential that something unexpected may happen. If something were to happen suddenly to a business owner, their business can come to a grinding halt which can cause major problems for those relying on the business for both the family of the business owner and the employees of the business. For solo business owners, this can be especially true.
One of the events that could cause problems for a business is a situation where the business owner is incapacitated such as in the event of a coma. Without a proper business plan in place, individuals who may try to keep the business afloat during the incapacity of owner may not be able to access the business’s operating accounts to ensure employees are paid, debts are being cared for, and daily business operations are being maintained. This can put a huge financial burden on a person who wants to keep the business afloat until the business owner recovers or a court order allows access to those accounts. This also can cause a substantial loss in business which may take an extended period of time to recover from or otherwise signal collapse for the business.
A death of a business owner can also result in complications. In situations where there are multiple partners in a business, the failure to set up a succession plan can result in business owners working with spouses or other family members of the deceased partner. Often times, business partners will seek to “buyout” the heirs of the deceased partner but this can be complicated if there is no plan to determine how such a buyout should be funded or if there is disagreement as to the valuation of the business itself. For solo business owners, the business interests would be subject to the probate process which can be time consuming and expense. In the meantime, the business may lose value before receiving a court order to allow the sale of the business assets.
Choosing who will be the successor for a business can be a big decision. It is important to elect a person who will be able to handle the daily operations of the business as well as someone who is capable of facilitating the sale of the business assets if need be. Likewise, if there are multiple partners, it may be important to negotiate a buy-sell agreement. It is important to speak to a qualified business attorney who can help you navigate the best options for setting up a business succession plan that works for your future goals and ensure the continued success of your business.