a Business Succession Plan
What happens in a
privately held business when the owner, a partner or a major stockholder
dies or becomes disabled?
Obviously such an
event will cause many changes in the business. With the proper planning
the business can continue and the surviving family members (in the event
of death) can move forward. Without the proper plan, such an unfortunate
event can produce even more disruption for the business and family.
Here are some concerns
you may want to consider:
- What immediate
effects would the unforeseen death or disability of owner have on the
ongoing normal activities of the business?
- What would the
immediate effect be on the financial affairs of the business?
- Who would sign
the contracts or write the checks?
On a longer-term basis, what would the future of the business look like?
- Is the presence
of the owner essential for the continuation of the business?
- What about the
longer term management of the business?
- Is there a capable
key manager or family member to step in?
- What about ownership?
- Finally, what
would the long-term financial affects be for the family of the owner?
- Can they afford
the cost of caring for a disabled person or pay any estate tax that
may be due?
Obviously, these are
not pleasant issues to consider. But, for the benefit of the owner's family
and the employees (and customers) of the business, some planning can make
a large difference.
Here a few ideas:
- Make sure someone,
in addition to the owner, is fully aware of the key aspects of the business.
This includes everything from knowing the location of the company checkbook
to knowing key customers and vendors.
- If there are other
owners, consider some form of buy/sell agreement. Often, a relatively
simple document can provide a framework for the sale of ownership with
the least disruption. Sometimes, insurance contracts can be part of
- Make sure the estate
plan of the owner is up to date. With the success of many companies,
many surviving family members are forced into company sale decisions
just to pay estate taxes.
- Finally, make sure
that the key individuals, whether they are family members, key employees,
partners or trusted advisors, are aware of your wishes, thoughts and
ideas. Some frank discussion may help everyone deal better with an "unplanned"
death or disability.