At 73, I’m allowed to talk about death and the problems that occur if we don’t face it and plan for it. If we’re honest with ourselves, few of us can imagine a world without us in it. But the truth is, life will go on without us and intellectually, we realize this.
Yet, as business owners, we often drive our companies forward with foresight and proactive planning, but fail to plan for the inevitable: death. This is the worst business decision we’ll ever make. Without proper succession and business planning, the unexpected death of a business owner leaves the fate of the company in a precarious state.
If something happens to you today, who will run the company tomorrow? How much will your estate taxes be and have you appropriated sufficient funds? If your shares are willed to your spouse or children, are they willing to stay on and run the company or do they prefer liquidity? Will a partner take the reins of the company, or will your heirs step in to run the business? If you have partner, will his or her interests conflict with those of your heirs?
These questions and many others deserve careful consideration. Ultimately you should have a well-defined succession plan in place that you share with family members, partners and possibly key employees.
There are many options.
- If you have a successor(s), make sure they are equipped with knowledge transfer and capital to continue building on what you’ve created.
- If you want to continue running the business, consider selling part of it. This allows you to take a significant amount of cash off of the table, meet the needs of your estate and protect your family and your personal retirement. If you grow the business with the new investors, you have eliminated the risk of investing the capital, but you enjoy the rewards of the equity you keep as it becomes worth significantly more. This type of plan provides you with cash at the sale of the company, future employment where you continue to drive the company forward — with other people’s money – and you are rewarded again when you sell the last piece of your equity.
- Of course, you can sell the entire business as well, ensuring the legacy of what you’ve built is safe with a buyer that shares your values and vision. Key positions for family members can be secured in these deals as well.
Waiting until the last minute to determine your plan for the business leaves you and those you care about in a state of desperation. It will likely be sold for much less than it’s worth, and you or your estate will have less control over the structure and terms.
Plan for the inevitable and you ultimately win — which it seems to me is what most of us really want.