In troubled times like these when we’re more aware of our own mortality, you may be wondering what will happen to your small business after your death. Now is a good time to begin the process of “succession planning.”
Surveys show that while most small-business owners plan to sell their businesses to fund their retirement, few have written succession plans. Further, many of these businesses are operated in such a way that it will be difficult, if not impossible, to find a purchaser.
While you might think succession planning is a concern only for older business owners, it’s important for younger business owners to create succession plans as well.
While a number of young healthy people have died from COVID-19, this will continue to be a concern even after the pandemic has passed. What if one of the business principals is killed in a car accident? What if a key person is diagnosed with cancer?
Without a good succession plan, these types of incidents can be devastating to a business. You should, therefore, schedule some time to meet (by phone or video-chat) with the other owners and leaders of your company to begin discussing a succession plan.
The first step is thoroughly analyzing the business, since you’ll need to have a good grasp of all aspects of the business before deciding how best to handle its future.
If you’re planning to sell (or give) the company to family members or employees, it’s important to have frank discussions with them to see if they’re interested. If appropriate, they should be trained for their eventual roles as early as possible.
Once you’ve created a solid succession plan, you should also consider a back-up plan. For instance, the employee you’re counting on may take a job with another company or the family member you identified may become seriously ill or decide to work for somebody else.
If your plan or back-up plan is to sell the company to an outsider, you’ll need to determine whether that’s feasible, and, if not, determine how you can modify your business practices to make it feasible.
In its free guide, Selling a Small Business and Succession Planning for a Small Business, the SBA recommends considering several questions when determining whether your business is saleable. These include:
• Does your business have a strong history of profits?
• Is it in an attractive industry?
• Is its location convenient to potential buyers?
• Are your business’s assets and inventory in good condition?
• Do you have good relationships with suppliers?
• Does your business have a solid customer base?
• Is your business dependent on the skills of a particular person or is it transferable?
• Does the business have a healthy balance sheet?
SCORE, a network of volunteer business mentors, also offers a free guide to succession planning for small-business owners.
Once you’ve worked out some of the basics of your succession plan, you’ll usually need input from multiple professionals, including tax advisers, lawyers, and business consultants, to make sure there isn’t a better way of handling the transaction and to finalize the arrangement.
Most professional offices, including ours, are open during this pandemic, while complying with physical distancing recommendations.
Please feel free to contact us if you need help planning for the succession of your business.
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We’re pleased to announce that Estate Planning (in Plain English)®, by Leonard DuBoff and Amanda Bryan, is now available from Allworth Press, an imprint of Skyhorse Publishing. It can also be purchased through Amazon, Barnes & Noble, and Powell’s Books.
To help support your local bookstore during the pandemic, contact it and ask that it order the book for you if it’s not in stock, or order through Bookshop, which supports independent bookstores.
Estate Planning (in Plain English)®, joins more than a dozen other books in the “The Law (in Plain English)®” series written by Leonard DuBoff and other members of The DuBoff Law Group.
