How to Create a “Succession Plan” When You’re a Sole Owner Small BusinessBy Nina Kaufman, Esq.
As Seen In Enterprising Women Magazine
You’re a busy entrepreneur. Every day, you whirl around like the Looney Tunes® Tasmanian devil, putting out fires, calming clients, and encouraging employees. There’s barely enough time to handle strategic planning, much less the kind of planning that involves answering that hard-to-face question: “what will happen to my business when I’m gone?”
The same way people drag their feet when it comes to creating a Will is the same way business owners avoid facing tough issues like mortality, business value, and whether they can find someone trustworthy to carry on their dream. Many business owners take the ostrich approach: put their heads in the sand and hope the issue will go away. But it doesn’t. Because, well, death is inevitable. (But you knew that, didn’t you?). And problems can mushroom overnight if you haven’t left clear instructions.
That’s why creating a succession plan is a vital issue for small business owners. You have the power to smooth the path that your successors will follow–or make it a tortuous journey. You can protect your (brain) child—or leave her to dissipate. The choice is yours. But once you choose to step up and make a plan, strangely, the “am-I-hastening-my-demise?” anxiety falls away and is replaced with a centered peacefulness.
What should your solopreneur’s succession plan, or “business estate plan,” include?
Life insurance. Especially for solopreneurs, their business is often 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. It can also be the source of funds for a buyout if you have other owners in your company.
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 business operations manual
- An organized customer list or database
- A list of passwords to your various accounts
- A folder with important legal documents, such as copyright and trademark registrations, leases, and other contracts
- If your business has multiple owners, a business ownership agreement, such as shareholders’ or LLC operating agreement.
- Your own Last Will and Testament and personal estate plan.
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.
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.
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 (attorneys, accountants, insurance professionals, bookkeepers, etc.), as they may also have information that can speed the wrap-up process.
The larger your company, the more robust your succession plan, or business estate plan, should be. A qualified business attorney can help you put these pieces together. More importantly, give yourself the gift of time over the next few months–time to think about the future of your business, whether you want it to survive you, and into whose trustworthy hands you would place it.
You deserve to be paid, protected, and prosperous. Kaufman Business Law can help get you there. Watch this short video to find out how.