This article was written by Theresa Marangas, Esq., Meier Law Firm Senior Counsel.
Planning for the future can stir up a mix of feelings, and it’s a task often put on the back burner in smaller businesses. It’s easy to see why business owners might sidestep this difficult topic! The problem is that without a clear plan for what happens next, the retirement or passing of an owner can lead to chaos. Some simple succession planning can create a smooth transition instead.
Clear Communication & Planning
Thinking ahead about what will happen to the company after the current owners are retired or passed away is vital. In a family-run business, Mom and/or Dad often call the shots. The first discussion for succession planning that needs to happen is for the owner(s) to talk openly with each other to ensure they agree on what they want for their business’ future.
Next step: talk to the kids about it. They need to find out if their children even want to be involved in the family business and in what capacity. Taking the time to write down what’s been discussed helps everyone get a handle on the areas of concern and can lead to further discussions about additional items that need to be addressed. Getting help from lawyers and business advisers can ease transition and avoid future conflict.
Assembling a Team of Experts
In fact, for a small business owner, having a team with different areas of expertise of is essential. This team should at least include a lawyer, financial advisor, accountant, and insurance expert. Each one brings their know-how to plan how to handle different situations so that you, the business owner, can reap the rewards of your hard work while passing on the reins. This team should work together to advise you on what insurance to buy, what documents your business should have, and how best to manage your cash flow.
Several documents are crucial in succession planning. Just like estate planning addresses what happens to your assets after you’re gone, legal documents for your business can similarly offer guidance if you are incapacitated or pass away. It’s best to have a power of attorney, an operating agreement with solid language and a succession plan.
Getting insurance for essential people in your business, called “key person insurance,” is also a smart move, and you should talk to your accountant about this being a business expense. Putting money into this kind of protection is essential to stabilize your business in the face of unexpected loss. If the owner passes away, the insurance policy would be triggered to help cover the cost of the owner’s interest in the business so her loved ones can be financially supported.
It’s good to have regular conversations with your team of advisors to make sure your business can face new problems and spot issues before they grow too big to handle! Since life and business can change a lot, you should check and update your business papers every 3-5 years or when there is a significant change.
Succession Planning is Crucial
Succession planning in a small business isn’t just a smart move to keep things running smoothly – it’s also a way to protect a family business’ hard work and legacy.
Regular chats with legal, financial, and insurance experts, keeping everyone in the family in the loop, and fostering a mindset of being ready to adapt are crucial to dealing with whatever the future might bring. A business with a strong succession plan and a team of trusted advisors can stand the test of time. This allows the company to continue to thrive, respecting the original owner’s vision while welcoming fresh ideas from the next generation.