SmallBiz-Info

Ever wonder why so many small businesses never survive the owner's death? Entrepreneurs often get so involved in day-to-day management of their baby that they never contemplate what would happen if they were no longer around. Planning for succession is a critical strategy for business owners who want to leave not only a lasting legacy for their years of hard work, but also financial security for themselves and their loved ones.

The key, of course, is to begin the succession process well before retirement is contemplated. It takes time to determine if the kids have the capability or desire to take over the family business—or if a key employee shares the vision and ethics the founder inspired. And it most certainly takes time to install a funding strategy that can provide the resources necessary to compensate the owner adequately when he or she is ready to sell.

Structuring a proper succession plan takes considerable thought, which is another reason why so many small business owners procrastinate. Does your plan address a catastrophic event, like the sudden death or long-term disability of the owner? Continuity planning is a key component to any sound succession plan. Does it provide a written formula for adequately valuing a business that would pass IRS scrutiny? Is a buy-sell agreement in place to lay out the parameters of any transition, and are all parties aware of the tax ramifications? If children are involved in taking over the business, how does the owner equitably deal with those kids who can't or don't want to be part of the business?

Like most things in life, there's no quick fix when it comes to an effective succession plan. So if you want to maximize the legacy your business leaves behind, the time to start planning was yesterday.