As a business owner, it is important to always have a vision for the future. Creating and maintaining your Business Plan is an integral part of running your business. Often there is so much focus on the day-to-day operations, that little planning is done for the future. Business Continuity and Succession Planning are key components of a Business Plan. Examples of questions to consider are:
- Is it the type of business that can be passed down to a family member?
- Is there a partner who will have the first buy-out right?
- Should the business shutdown if the owner passes?
- What are the legal and financial risks and costs associated with each option?
Many businesses have one or more partners. A buy-sell agreement, which determines what will happen to the business if one of the partners dies or can no longer work at the company, can help keep the business running smoothly. With a buy-sell agreement, a sale price for each part of the business can be set, and you can determine whether a partner can even buy the deceased's portion. The plan may include term-life insurance and a living trust that includes the details of what will happen to the business assets.
What about a Sole Proprietorship? A common misconception is that this type of business has an independent legal existence, such as that of a corporation, partnership, or limited-liability company. In fact, the sole proprietorship's existence is completely linked to the individual who created and runs the venture. The primary effect of the death of a sole proprietor is that the business cannot continue in its existing form. The business must either wind down completely, be transferred to another individual or legal entity, or sell the assets to a third party.
Preparing for what happens to a business when an owner dies requires careful consideration and planning. Improper planning, or worse, no planning, can wreak havoc on a business and can even force the business to close.
We can help you get started with the aspects of your Business Plan, and help you put together a team of experts to ensure that your business, family, and employees are taken care of.