Are you a small business owner? If so, you may love your job so much, that retirement, death, or incapacity are the furthest thoughts from your mind. While you may not intend to exit the business in the near future, have you considered the possibility of what might happen if you have to unexpectedly retire, die, or become incapacitated? How will your company continue to exist? Who will take the reins and run the company in your absence?
Depending on the level of your direct day-to-day involvement, determining who will take control of the business and/or training said individual could take quite a bit of time.
What exactly is a Business Succession Plan?
A business succession plan is a roadmap for your business in the event you retire, are incapacitated, or pass away. Think of a succession plan for your business like an extension of your personal estate plan. By creating a business succession plan, you are clearly identifying who will take over, how they transition into that role, and in what capacity. Depending on the nature and complexity of your business, a business succession plan can range from fairly simple and straight forward to quite complex and dynamic.
Similar to a personal estate plan, business succession plans are not “one size fits all.” To this end, it is highly recommended you speak with an attorney
that is skilled in both business planning and estate planning to ensure that both plans work together to achieve your ultimate goals.
Why should every small business owner have a business succession plan?
A small business succession plan allows you to take a proactive approach to identify new owners of the business, address orderly transition from one owner to the next, identify procedures for transfers in ownership that are the result of unanticipated circumstances that result in challenges (i.e. death, illness or incapacity, or even partnership disagreements).
Business succession plans allow you to prepare for retirement while securing the survival of the business beyond your ownership. Further, by implementing
a business succession plan you are able to address and account for various tax consequences associated with a transfer in ownership.
Consequences of not having a plan in place
Not having a plan leaves everything up to chance. Why would you ever want to leave something you have devoted a substantial amount of your life, both physically and emotionally, up to chance?
There is potential for monetary loss due to estate, gift, and income tax issues. Additionally, not having a plan could result in huge gaps in wealth from a lack of business valuation activities and financial planning.
Lastly, without a plan in place, your business may end with you slowing down or becoming incapacitated. Due to the structure of the business and the individuals involved, not having a plan could result in the business having to dissolve and liquidate.
If you are a small business owner it is imperative you establish a succession plan to ensure that your business and your family have a smooth transition in the event you retire, become incapacitated, or die.
To learn more about how a business succession plan can assist you in your time of need please Contact Us or call 301-670-7030.