Succession Plan: Your Obligation as a Business Owner
Business Owners 5 of 6
Do you ever think about what happens if you don’t wake up tomorrow? It’s an incredibly morbid thought, I know. And one that you might ignore based on your health or age. But there are no guarantees that you can show up to work tomorrow morning. And to a business owner, this has even greater implications. Think about all the people who are one way, shape or form, dependent on your business.
- As a business owner you have obligations to more than just your family and dependents.
- What about your employees? What happens to them and their families?
- What about your clients or customers that rely on your products and services?
- Or your vendors who supply your business?
- Your financers who had planned to collect on loans?
All are equally important to the ongoing success or instant failure of your business if you don’t make it to work tomorrow. So what happens to your business when you die? The odds are, what happens to YOUR business isn’t clear at this point, and needs to be addressed through a formal succession plan. The structure of your business has a lot to do with what happens, but this type of thing is best not left to chance or the defaults of your will (if you have one).
For example, your family may inherit your business, step in and in doing so, upset the apple cart.
- Does your spouse know how to run your business?
- What about a situation where one or more of your children, who may have nothing to do with the day to day of the business, are now equal owners with others who do run the day to day? How will that work? Will there be conflict and resentment?
- What about key employees who could have run the business, but are left out of the planning? What will they say? Without dedicated employees, your customers would surely look for another alternative to meet their needs.
- Without the confidence of your clients or customers, there wouldn’t be much of a business left.
- If your vendors or bankers decide to pull the plug because they lack the confidence in the businesses ability to succeed, once again the entity is doomed.
I hope my point is clear. As an owner, it is in your best interests to be sure that there is a plan to carry on and that all the people who make your business what it is are aware that there is a plan in place. We suggest the following:
- Draft a plan and consider appropriate ownership, new job descriptions and a structured hierarchy.
- Seek assistance from a CPA or lawyer who specializes in business valuations to know what your business is worth. Could it be sold when you are ready to retire? Could your key employee buy it from your spouse if you pass away? Could life insurance help facilitate that transaction?
- Document the plan to formalize any agreement.
- Communicate the plan to all parties involved, INCLUDING your customers. They will respect you more by knowing you have thought about their future interests as well.
- Revisit the plan over time. People change. Employees come and go. Business valuations will go up and down. Make sure the plan still works, no less than annually.
We are here to help you solve your potential problem today without compromising your long-term objectives. But do not leave this type of situation to chance. You as a business owner have that obligation.
Securities offered through LPL Financial, Member FINRA and SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor. U.S. Financial Advisors and Haas Financial Group are separate entities from LPL Financial.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Business Valuation services are not provided through Haas Financial Group, US Financial Advisor or LPL Financial.
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