If you own a small business, you might get so involved with working in the business that you forget to work on the business. But, if something happens to you such as a disability or death, the future of your business and hard work is in jeopardy. If you are interested in keeping the value of your business intact, and want to see it passed down smoothly to the next generation, take the time to formulate a business succession plan.
I have a plan: my kids will inherit the business when I die
For many business owners, the succession “plan” is a rather casual one: you imagine that your children will inherit the business and all will be blissfully easy. However, after the owner passes away the children are often left in a bitter, prolonged battle over what should be done with the business. According to The Economist, only one third of businesses successfully transition from the first to second generation and only 5% make it to the third generation.
There are a myriad of questions that face children who inherit a business from an owner who failed to plan. Those questions – and the fights that result from them – can destroy relationships within the family and lead to the end of the business. The better approach is for the business owners to engage in a succession planning process that answers the many questions raised, and to document the plan. Among the questions that every business owner should consider are:
- Who should perform my duties as an “employee” of the company if I can’t? Do we hire someone? Can we afford it?
- Who should make the big ownership decisions for the company if I can’t? One of my children? Someone else?
- Who should share in the profits of the company once I am gone? If it is my kids, do they all get equal say in what happens to the business?
- If I have a co-owner or partner, what happens if they die? Should I be able to buy out their family? Should they be able to buy out my family if I die? What if one of us divorces?
This may seem like a lot to think about for a busy business owner, but you owe it to yourself and to all the people who depend on you and your business to think these issues through, create a plan, and make sure your business survives even past your own life.
By Scott R. Learned, Esq., owner of Learned Lawyer PLLC