Despite having millions of small business operating in the United States, many of those small-business owners donâ€™t have the faintest idea on how to formulate a proper business succession plan. This has easily become one of the major concerns of many owners; how to coordinate a proper transfer of their business to the next generation, or to their estate.
Taking the proper measures to ensure a smooth transition is vital for every business, however it is also commonly overlooked, or more often than not, it is commonly misapplied. The following are the four (4) most common mistakes business owners make when attempting to create a succession plan.
1. Failing to plan is planning to fail: Failure to plan: One of the primary reasons why many fail to have a plan is because of laziness. Most do not consider it important enough to take the time to complete. However, the effects of non-planning will prove to be burdensome when it comes time to retire, or upon your death. Take the time to sit down with a professional and discuss your options – it can even possibly save you money down the road.
2. Failing to incorporate the Estate and Business plan together: A common misconception with owners is that upon their demise, they feel the assets owned under the company would automatically be distributed to their surviving spouse. Although that may have been the wishes of the deceased, that is not how it works in reality. A carefully drafted business succession plan would include such concerns and ensure the wishes of the owner are fulfilled.
3. Failing to appraise the business: Similar to knowing the value of your home, it is just as important to know the value of your business. This is especially true if your succession plan involves the sale of your business, or if it is passing to your heirs, as the value would need to be noted for estate tax purposes.
4. Failing to create an Estate Plan: No business succession plan can be complete without having a proper estate plan. If it is your intent to have the funds of the company transferred to your heirs, the most efficient manner for it to occur is through your estate (i.e. Revocable Living Trust). Furthermore, it is equally important to have a contingent plan in place in the event you become disabled or unable to manage your business and/or financial affairs. Who would run the businesses, or make the decisions? Establishing a Power of Attorney to handle these affairs is necessary for your company to continue its operations.
It is widely acknowledged that business owners have a busy, compact, and hectic schedule. However, by not taking the proper steps of setting up an effective succession plan, business owners are simply hurting themselves personally, the business, and their heirs. Proper planning can take a few hours of an ownerâ€™s time, but it can save years of headaches afterwards. Always be sure to consult with a trusted professional who can assist and guide you through the process, and be better able to meet the goals you set out for your business.
Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at firstname.lastname@example.org or (517) 381-2663.