People who have spent their lives developing and growing a business want to see it live on. Choosing who will run your business when you step down is critical. And the implementation thereof may require time to think, decide, and transition.
As an entrepreneur or business owner, you should accept that you need to groom your replacement. The success rate of a business drops significantly the more generations it passes through.
Although you may decide to sell the business to someone else, you may also choose someone within your own family. Should you pick the latter, you will play a prominent role in training your chosen person. Furthermore, should you pass away unexpectedly, is there someone who can run the business? This is why business owners create succession plans as part of their estate planning process.
Why You Need A Succession Plan
Business owners should sit down with an estate planning attorney for all the reasons previously mentioned. And you should know there are advantages for you and your loved ones as well.
If you are a partner in a business, you have an already agreed-upon valuation for your share of the company. If you pass away suddenly, your beneficiaries (e.g., your spouse) will, presumably, receive that money quicker. For planning purposes, your spouse can have peace of mind knowing how much your share of the business is worth.
Ask your attorney about how immediate policy benefits can be paid out. By establishing value now, you prevent problems later. Imagine you own 99% of a business valued at $10 million. Without an estate/succession plan in place, you leave the remaining partner(s) to come up with the money to buy your share out. Granted, this is an extreme example, but you can see how easily a buyout can get delayed.
Your First Choice Could Be Wrong
Although you can’t know for sure if your successor will be the right fit, you have time to train and incorporate them into your role. And even then, it may be in everyone’s best interest—as well as the employee’s—if you need to seek out other options.
Choosing a family member could present internal family challenges as well. By selecting one, you may be passing over someone else. The sooner you begin planning, the more time you have to explain your choice to the family. If ties are fractured, you have the space and ability to repair them.
Jayaraman Law
If you have further questions regarding estate planning or business law, contact Jayaraman Law to schedule a free consultation. Whether you need legal assistance with building your business or shaping an estate plan, we will provide the sound advice you need to make the decisions that shape your life.
Jayaraman Law
