Many of my clients run their own businesses, either as sole proprietors or majority owners. I’m often amazed at the dedication and determination they have in making their businesses a success.
Yet I’m just as often surprised by how much they neglect to consider the impact to their business if something was to happen to them. After all, a business that loses a “key man” can quickly depreciate in value, making a bad situation even worse for the person’s family.
The good news is that proper business estate planning can help. With it, business owners can either pass down their company to the next generation or maximize its value through a sale.
When creating business estate planning documents, it is vital to identify a “key person” who can
- take control of business accounts, equipment, client directories, accounts receivables, important files and records;
- continue operating day-to-day business at a profit until the business is sold or passed down to the successor owners;
- keep the family informed of all business operations, assist family members with managing, winding down, and disposing of the business, or help the business management transition to the next generation.
A separate but related issue arises in partnerships. For business owners who have partners, it is very important to determine what happens to the partner’s share if they suddenly die. For these situations, I usually recommend a “buy-sell” agreement, which allows either the surviving partner or the business entity to buy back the shares of the deceased partner.
Although these are complicated strategies that take thought and time to plan out, it is worthwhile to make that investment before it is too late.