Call us now:
A. Making sure an orderly and affordable transfer of your business can be accomplished if you plan now. Failure to plan always costs a lot of money and can even force a company to liquidate rather than carry on through the transition period, and such situations often create lasting family and personal strife. Unlike in movies, where ultra-rich parents potentially leave billions to spoiled children, most small business owners struggle with just making sure enough capital is available to continue the business and still provide for their family and loyal employees. Planning is critical.
Most succession plans involve six steps:
- Survival – First, buy appropriate business continuation, disability, and life insurance for yourself and set aside something each month for your own retirement. This is as important as you showing up to work every day and making a five-year business plan.
- Choose a Direction – Determine whether you really want the business to pass within the family as opposed to selling it to another tradesman or professional, or simply dissolving the corporation. Once you are sure continuation is in everyone’s best interest, you must create opportunities for others to learn all aspects of the business so someone can step into your shoes.
- Recruitment – The person saying he or she wants the business is not necessarily the one who has the capability to lead. You may have a unique set of characteristics that your offspring lack. Sometimes it is best to split responsibilities to take advantage of individual strengths and hire key persons to fill in the gaps.
- Development – Invest time in training key people. Don’t let family shirk business responsibilities if you expect them to take over.
- Select trusted professionals – lawyers, a CPA or accountant, an insurance agent, and a financial planner — to help you formulate a business succession plan and make it legally enforceable in the event of your disability, retirement, or death. You may need to update your business plan, create a buy-sell agreement, revise your will, create a limited financial power of attorney for the business, and/or create and fund a living trust. There may also need to be funding vehicles like key-man life insurance put in place.
- Implementation – Once a well thought out plan is in created, you need to take the steps to put it in place. You can modify it, but at some point, you must be ready to step aside so set a trial date. Actually, let those you have selected run things for a week or two on their own. Listen to their ideas on changes and allow them some opportunity to make plans on their own, with your oversight, guidance with an eye on profitability. This does not mean you have to retire, but you may look forward to limiting your role and taking some well-deserved vacations.
Disclaimer: Information contained in this column is meant to be of general information on frequently asked questions concerning disability, elder law, estate planning and probate law, and does not contain specific legal advice to a client. No attorney-client relationship is created by reading this column. December 2021
WRITTEN BY LINDA KNAPP
You may reprint this article with my permission by showing the Firm’s name and attaching my contact information. If you wish to cite the article you must give full credit to the author, Attorney Linda Farron Knapp. Nothing in this article creates an attorney-client relationship. When the article was written it was good law, that may not be situation at the time of reprint. We advise you seek competent legal advise based on your own factual situation before relying or acting on any legal material you read online.