If you don’t begin planning until a life changing event, you may find it is much more difficult.
Business owners work hard to build a business and then decisions should be made to create a smooth transition, when the time comes to sell it or pass it on, according to Smart Business in “Questions for business owners to consider when estate planning.”
If the business owner waits until a life changing event, such as illness, to begin, it may well be too late.
First, the business owner needs to determine, if the business should continue or if it should be cashed out. If the owner wants to see the next generation take over, the owner will need to take a candid look at how engaged various family members are in the business and if they can realistically manage and continue to operate it, without the founder at the helm.
If there are many family members—kids, in-laws, etc.—then roles need to be defined, so everyone knows their responsibilities.
If there are children who have no interest in being part of the business, then a decision needs to be made about how they will benefit fairly.
If one of the owners of the business is not a family member, the owners need to discuss how that ownership is going to transfer, when one of them departs. You’ll need buy-sell agreements in place, as well as a succession plan. What will happen if one of the owners becomes disabled or dies unexpectedly?
The decision to sell the business or plan for the non-family management team to control the business, needs to be made and acted upon. The management team needs to be on board with these decisions and everything needs to be in writing.
The biggest obstacle to smooth transitions for business owners is failing to make a decision. If the heirs are left to figure things out and end up battling over shares of the business and responsibilities, the business will suffer and the family is often left needing to sell an unprofitable business that has lost value.
Planning for a business owner to step down, should start once the business is successful and profitable. Having a succession plan, which also includes an estate plan, prepares for any unexpected occurrences and allows family members to get comfortable in their roles as future leaders of the business.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include a business.
Reference: Smart Business (Aug. 27, 2018) “Questions for business owners to consider when estate planning”