Nearly 1 in 4 business owners say their business is not prepared if they were to die unexpectedly.
Not planning for this situation could turn into an even greater tragedy for your family, partners and employees. If you are like most small business owners, your efforts contribute directly to the bottom line. With you gone, the business would suffer.
It’s a fact that business owners want their business to continue; however, many haven’t spent the time to ensure the continuity of their business with a documented succession plan. Business owners may have insurance to help keep the company going in the event of their unexpected death. Yet, according to a New York Life survey of small business owners, many don’t have enough insurance to adequately fund the company for continuity.
Key to succession planning is having the answers to these questions (and more!):
Who would take your business over?
How would they know what your wishes are?
How would your legacy - - vision, years of hard work and risk - be protected?
What financial plans are in place to help with the transition?
Recently I came across an article ‘Protecting your legacy: succession planning for small business’ published by New York Life (N.B. I don’t represent them) that provided helpful reminders about what you need to think about to protect your legacy. Here are a couple of quotes:
“Even if you're like more than half of those surveyed who already plan to leave their businesses to their spouse or another family member, you will still need a blueprint to help them. You can use succession planning to guide the business into the future, strengthen your company's bottom line and help secure your legacy.”
“Most survey respondents have high hopes for their company after they're gone. More than nine in 10 said that keeping the business healthy and thriving is "very important" or "somewhat important" to them so that it continues to support their family, their employees and their community. With careful planning, you can ensure that the business you’ve worked so hard to build does just this.”
Here are 8 important factors for business owners to address in their succession plan.
1. Define roles.
Document your employees job descriptions and include duties, expectations, salary range and performance criteria.
2. Document processes and procedures.
Document or update your strategic plan, day-to-day operations, emergency procedures, vendors and other important contacts, and anything else required to keep the wheels in motion.
3. Outline the transition.
Put your plan in writing: who, how and what. Have your terms reviewed by a lawyer. Will the business be transitioned to heirs, your shares sold to a partner or the company sold in its entirety?
4. Consider insurance as a transition tool.
Review your coverage. Use one or more life insurance policies for the sole purpose of continuing the business.
5. Communicate your intentions.
Communicate your wishes in advance and save confusion in the event of an unexpected health event.
6. Schedule periodic reviews of your succession plan.
Think of it as a work in progress. As your business changes – people, processes, revenue streams, opportunities -- your plan may have to change.
7. Ensure a smooth transition with a will or trust
Communicate your intent in a way that can't be dismantled by survivors, partners or employees who have other ideas or understandings about your wishes. A will and/or trust are reliable estate planning tools.
8. Seek out a business advisor to help you
By working with an experienced and trusted advisor, the work required to build the plan you want will get done while you stay focused on your business.
Need help getting started?
I have worked with dozens of business owners over my 40 year career to help them get organized to protect their legacy and family’s future while building value in their company. Want to get started? Give me a call for a meaningful conversation and we’ll see if there is a mutual fit.
Best regards — John
You might be interested:
Small Business Insurance Gap survey https://www.newyorklife.com/assets/docs/pdfs/business/Small-Business-Insurance-Gap-Survey.pdf
For business owners: a value enhancement framework to build value in your company