Are you ready to stop, look at yourself in the mirror and willingly admit that you have no business succession planning in place yet? Yes, planning for when you leave the business (because of bad health, retirement , or death) is a must-do if you want to sustain all of the hard work you put in and managed to continue—at least, if you want the business to go on for a few years more.
In this article, I’ll take you through some action steps to start planning for your departure from the business. Remember, whether you’re young or old, you need to have a plan in place!
Red Flag: Who will run your business when you are too sick to manage it? Will it be a family member, a friend, or a partner (personal or business)? Who knows how to open and close your business? Who knows how to advertise for you? Who knows how to manage the finances? Who has the authority to pay bills and make decisions when you cannot?
Action Step: Identify one or more persons to manage these tasks in your absence. Put their roles and responsibilities in writing and have the document notarized. File one copy with your attorney, one with your accountant or CPA, one copy each with each of your immediate family members, and retain a copy for yourself in a safety deposit box or fire proof safe.
Red Flag: Your children or spouse are not interested in continuing your business; yet, they want the income of a buy-out upon your death.
Action Step: If you have a business partner (legally designated partner with a vested financial interest in the business), talk to them about obtaining a term life insurance policy on you so that in the event of your death, the partner will have the sufficient funds to buyout your share of the business. This will create immediate revenue for your loved ones, eliminate their concerns, and give your partner the ability to run the firm as s/he sees fit.
Red Flag: You are 100% of the business. How? You are the only one with the knowledge, expertise, or skill sets to continue your service-type business. There is nothing to sell beyond your intellectual properties. When you die or retire, the business will be discontinued. Will your family be responsible for any debts owed by the business?
Action Step: Make a list of your debts and meet with your attorney. Determine if the debts will be forgiven (based on state inheritance and death legislation language). If not, take out a small term life insurance policy in the amount that will cover your debts. Review the policy annually to determine if you have a sufficient amount of insurance to leave your family debt free when it comes to business liabilities.
These action steps will give you (and your family) peace of mind related to your small business when you are no longer actively involved in its management and continuance. To get find out more about the topic Business Succession Planning check out the book A Guide to Sustainability for Small Business.