The best way to plan for the future of your business is to answer the tough questions early on. In this month’s “Financial Fitness,” as featured in Small Business Monthly, Karen Stern, Partner in Charge of the Brown Smith Wallace Entrepreneurial Services Group, discusses some important succession planning tips that your small business should have in place.
Who’s the best person available for the job? For most business owners, that is a question that comes up dozens of times a year. And it is the most important question in estate and succession planning.
- If I am unable to run my business, should I continue to own it, and if so, who will run it?
- If I die, who should own the business and who should run it?
If you cannot continue to work in the business, should you continue to own it? Many businesses produce income that is much greater than the income that could be received by selling and investing the proceeds. But if you are not there to watch it, there is a risk that the income and value of the business will decrease over time.
Who will operate the business? If you have absolutely no candidate, you should probably sell. If you have a perfect candidate, you can keep the business. It’s more complicated when you have an untested candidate. One absolute: Never put someone you do not completely trust in charge.
The situation changes when you are not living, particularly if you have a surviving spouse who is not in the business. If your family continues to own the business, will it produce enough income to compensate for the risk?
Who can operate the business after your death? Can your spouse oversee the investment? If you put one child in charge, will he think he is working for his parent and siblings, and will the siblings think the new candidate is receiving a huge salary for a job they could easily do? Will the trusted employee who goes above and beyond for you feel as loyal to your spouse and children?
Periodically think about these issues and communicate your current thinking to your family and your advisers.