The Solopreneur’s Business Succession Plan
By Nina Kaufman, Esq.When titans of industry pass on or resign, as Steve Jobs from Apple did recently, there’s usually a flurry of speculation about the business succession plan. Who will take over? Will they have the same creativity, moxie, or charisma? Will the change be good for the company? Did the stock price go up or down? Is that a sign of confidence or weakness?
Drawing far less media attention is what happens when a solopreneur or sole owner of a company dies. What happens to the company? The copyrights or trademarks that the company owns? What happens if there’s no business succession plan or obvious purchaser of the assets? Here are the top items and documents a solopreneur should have organized before he/she passes away:
1. Life insurance. For many solopreneurs, their business is the sole or primary source of household income. Life insurance can help bridge that gap and provide funds for your family to live on for a time, until they can get on their feet and start making their own.
2. A winding-up account. This would be a bank account that can cover at least three months of all expenses. This gives your spouse—and advisors—time to get a handle on who your vendors are, when payments are due, and what kind of notice period is necessary to close out accounts. It also buys time to try to find a buyer for your business assets.
3. Power of attorney. Solopreneurs or sole owners may have opened banking and other vendor accounts (website hosting accounts, leases, credit cards, overnight courier, etc.) in their own name. Once you’re dead, you’ll need to have proof that another person has the authority to act on your behalf … and (obviously) you can’t provide that posthumously. A properly executed Power of Attorney can allow another person to easily step in to wrap up your affairs. Otherwise, your heirs may have to file a probate proceeding and obtain letters testamentary, which can become a drawn-out and expensive process.
4. Letter of instruction. It may not be binding, but if you have a good relationship with your survivors, they’ll want to honor your last wishes. A letter of instruction indicating where documents can be found, which items are most urgent, and who might be an interested buyer for your business can drastically shorten the time your heirs spend looking for this information. It also spares them the emotional agony of worrying about “What would [your name] have wanted?” Also give them the contact information of your trusted advisors (small business attorney, accountant, insurance professional, bookkeeper, etc.), as they may also have information that can speed the wrap-up process.
5. Important business documents. Transferring a business doesn’t always take place in the context of ready seller and willing buyer. For solopreneurs, it can involve a surprised and unprepared (and dead) seller and a buyer preying on the misfortune. You can take some preliminary steps toward preparation by having the following documents at the ready:
a. A business operations manual
b. An organized customer list or database
c. A list of passwords to your various accounts
d. A folder with important legal documents, such as copyright and trademark registrations, leases, and other contracts.
The location of these items can be noted in the letter of instruction. All of them can provide evidence for a curious buyer that yes, indeed, you had business systems and intellectual property that continue to have ongoing value—and that deserve to be compensated accordingly.
There’s no substitute for give the time and attention to putting together a proper business succession plan. But short of that, these steps can go a long way to ensuring that your business interests are wrapped up in a way that you would have approved … and that garners you maximum financial benefit under the circumstances. An experienced small business attorney can help you get these pieces together. Are there other parts of an informal business succession plan for solopreneurs that you would add to the list?
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