This post was submitted by Capstone Project Manager Gretchen Johnson:
Experts say that the death of a business owner could mean the end of the company without a sound strategy.
Rather than a single, dramatic moment, the smooth succession of a business is a series of events. Like a relay race, a company transition should be graceful, carefully strategized and well executed to be successful. Unfortunately, the majority of business owners neglect to plan for their own succession.
More often than not, the reasons are psychological. No one likes thinking about their mortality, and entrepreneurs are no exception. Moreover, some owners so closely identify with their ventures that they can’t imagine their heirs continuing without them. Others believe they’re too busy to plan and consequently put off succession planning until tomorrow.
Tomorrow is too late. It is important to develop a business succession plan that defines what would happen to the company in a worst case scenario. It is especially important to ease the burden for family members who are left to pick up the pieces.
If a business owner dies before a plan is implemented, the business could be sold under duress at price far less than what the business might be actually worth. Or worse – the state could decide the future of the business and all of its assets if a written plan is not in place.
Owners should begin planning while they are still healthy and active. If you wait until after you’re 65, you can’t do many of the jobs associated with succession planning, such as teaching, explaining how the business operates, and passing on the spirit and vision with which it was founded.
Many sources define the time to plan between the ages of 55 and 65. And the handing over of the baton, the plan itself, should be a process, rather than a single event. Some experts recommend a three-to-five year plan while others advocate five to 10 or even 10 to 15 years. All agree, however, that the more time allotted for planning, the better the outcome.
There are a various business plans that could help determine a company’s future, including buy/sell agreements, life insurance on business partners in case of death, trusts and estate planning.
It is important to find a team of experts. The team could consist of a number of different specialists, including lawyers, accountants, investment advisors, insurance specialists and trust officers. While hiring specialists can be expensive, it would be more costly to forgo their services.
Estate and succession planning is about much more than money and finances. While it is important to be a good steward and maximize profits, maintaining the owner’s legacy and diminishing family burden can often be of greater value.