Whether you sell a few items on eBay or run a multi-state conglomerate, all business owners need one thing: a succession plan. A succession plan is simply a procedure for your business to cope with your retirement, incapacity, or death.
Is there someone who can lead your business successfully without you at the helm? If you intend to close down after one of these triggers, who is going to cut the final checks, make the final deposits, file your business taxes, and formally close the business with the IRS and Department of Revenue? If you have partners, will they buy you out – and do they have money to cover that?
As an increasing number of baby boomers are reaching retirement age, a succession plan crisis is playing out in across the country. A whopping 58% of business owners do not have a specific succession plan to transition out of their business, according to a survey of business owners conducted by Wilmington Trust. CNBC reports that Boomers alone own 2.34 million small businesses, and those businesses employ 25 million people. US businesses are in the process of a huge ownership turnover, and the majority of them are completely unprepared.
As you can imagine, when a business owner stops managing a business without a succession plan, the stability of the company is very much in doubt. If the business staggers or completely folds, that could leave the owner or their estate with major liabilities – including unpaid wages, back taxes, and lawsuits from clients and vendors. Loyal employees can suddenly find themselves without a job or benefits – and older employees may not be able to find new positions easily.
The probability of your business passing through probate should also be deeply concerning. Most people have heard of the horrors of probate with just individual assets – now, compound that by a hundred for an estate with business assets. Virtually every transaction needs to be reported, verified with receipts, and approved by the court. How do employees get hired and fired in the interim? The business could be tied up for years trying to straighten things out.
A succession plan is your map to guide you to safe harbor. Even a small side business needs one – to avoid probate, the owner’s membership interest in an LLC should be transferred on death to someone who can access and wrap up the business. A larger business with employees may need a more comprehensive plan, including identifying potential leaders, purchasing life insurance on owners or key employees, transforming into a employee-owned company, or perhaps a buy-sell agreement to cover one partner’s exit from the company.
Whether you are a business owner whose bottom line will be directly impacted, or an employee of a small business whose job could be on the line, I urge you to start the conversation about succession planning. Huge changes are underway, and with 58% of businesses unprepared, we could be looking at significant changes to fabric of American industry.