Business owners who fail to engage in business succession could find themselves in a dire situation if emergencies arise. This strategy is especially important to sole proprietors and small business owners because it authorizes a person to take control and keep the company afloat.
Setting up a business succession plan isn’t difficult, but does necessitate making smart decisions. The type of plan that is put into place depends upon certain factors such as choosing a successor and determining the company’s value.
Every major corporation has contingency plans in place to ensure operations can continue regardless of what happens. Just as CEOs designate key personnel to assume their duties, small business owners ought to do the same.
Succession planning entails choosing a successor who is capable of performing duties at the same capacity as owners. Putting together a plan involves reviewing a variety of scenarios and developing protocol to address concerns.
It’s best to commence with business succession planning early on. This will provide ample time to produce a solid plan, as well as select and train successors. Depending on the size and complexity of the company it might be best to work with a business lawyer.
Owners ought to prepare power of attorney forms which authorize agents to perform specific transactions on their behalf. For instance, you’ll want to allow someone to handle business finances if you’re unable to do so.
This could include paying bills; depositing or withdrawing money from checking accounts; or signing payroll checks to name a few. Basically, anything that requires your signature to complete a transaction generally requires a power of attorney.
Business succession is important for every owner, but even more so for family-owned businesses. In a perfect world there wouldn’t be familial discord, but unfortunately it exists. If plans aren’t put into place and legal contracts written the consequences can be devastating.
It’s advisable to meet with business lawyers, such as Craton and Switzer, to ensure adequate agreements are included in succession plans. A few of the more common are shareholder, stock redemption, and buy-sell agreements.
Another element of business succession is estate planning. It’s wise to determine who will inherit the company in the event of death. Most often, beneficiaries and successors are the same.
Whether successors are relatives, key personnel, or hired from outside the company, developing a plan ensures operations can continue uninterrupted. It can be helpful to seek out law firms that offer a variety of services including business law and estate planning.
Owners will need to enlist help from a certified public accountant to obtain business value appraisals. Values are determined based on various factors and take in account the value of company assets, stock shares, accounts receivable, and purchase orders.
Business values aid in determining how much life insurance is needed to protect the company in the event of the owner’s death. Values also provide a fair market assessment that can be used when selling the company or transferring ownership to relatives or business partners.
The law firm of Craton and Switzer specializes in helping clients create plans to safeguard personal and business assets. Our team is available to answer questions about business succession, estate planning, retirement, and family law. Click here to contact us via email or call us at 562-628-5533.