The Crucial Role of Estate/Succession Planning for Small Business Owners
As a small business owner, your passion and dedication drive your enterprise forward, shaping its success and legacy. Amidst the daily hustle of managing operations and ensuring growth, there's an essential aspect that often gets overlooked: estate planning.
Not only do you need to deal with your estate plan in general (so dealing with what happens if you die or become incapacitated), but you also need to deal with succession planning for your business (how the business operates, gets sold, or is transitioned if you die or become incapacitated). Dealing with estate and succession planning is critical, not just for your family, but also for your customers and employees.
If you stop and think about it…
If you weren’t around, what would happen to your business?
If you suddenly passed, what would your family do?
Would they know how to operate the business?
How do they know who to trust?
How do they know who to talk to about operations, transitioning, or a sale?
As you might imagine, there’s a lot that can go wrong.
Value Can Be Lost…
Unfortunately, the value of the business can dissipate very quickly when an owner passes, as revenue dips and employees and customers start heading for the doors. The song “Time is on My Side” may have been made famous by Irma Thomas and the Rolling Stone (and made creepy by the movie Fallen), but rarely would an executor or trustee find those words relatable. For an executor or trustee who has to operate the business of someone who passed, time is definitely not on their side. No it’s not. A business that may have been valued in the millions just prior to the death or incapacity of an owner might be worth next to nothing in a matter of weeks or months.
…Business Waters Can Be Treacherous, and Filled with Sharks…
Having the right team of professionals and fiduciaries (executors and/or trustees) is critical. Every business is different and presents its own unique set of challenges and opportunities, but a good team will know how to keep the ship afloat, whether it means selling to an employee or group of employees, restructuring employment agreements with key employees to keep them on board through a sale, or hiring an M&A broker. We can help you identify that team and make sure your plan brings that team together.
…But Succession Planning is Invaluable (and Tax Deductible!)…
If you plan ahead, disaster can be avoided. Your loved ones can:
Be prepared to navigate an unexpected but very difficult situation,
Extract as much value as possible from your business in as little time as possible, and
“Avoid probate” by not having the business pass through a court supervised process.
As part of an advanced planning discussion, we might also look at whether it makes sense to shift ownership now through gifting or sale techniques so that your family can save on future estate taxes.
Many clients come away from these discussions inspired to position their business in such a way as to be less dependent on them. We have seen instances, unfortunately, of clients passing with businesses that generated considerable income, but that had no market of prospective buyers because the business relied on 60 hours of work per week by an owner who was in complete control. So not only is a succession plan helpful to address what happens if you pass—it also helps address what happens if you live and want to voluntarily exit the business.
…Not Terribly Difficult…
We have helped hundreds of business owners with their estate and succession plan, and have a well-defined process to help you get your estate and succession plan in place as painlessly and cost-effectively as possible. We start with an informal meeting so that we can get to know you, and better understand your business and your objectives. From there, we present you with our recommendations and ideas, have a second brief discussion to make sure we’re on the same page, and then we send you drafts of the plan within a few business days. You can review them at your leisure, ask any questions and make any changes, and when you’re ready, we meet to sign. The plan can always be updated, so if we’re not able to knock it out of the park the first go, “don’t let perfect be the enemy of good.” We can move you from an “F” to an “A-,” and always retake the test whenever you’re ready. If our process moves too quickly for you, we can certainly schedule more calls or meetings to consult with you. We just try to move at a speed that helps you progress towards a finished product and avoids paralysis by analysis.
…And Not Terribly Expensive.
How much does all this cost? Typically, when you work with us, it comes in around $2200. That includes everything described above, as well as all the basic estate planning documents (Wills, a revocable living trust, financial/durable powers of attorney, healthcare powers of attorney, living wills, and transfer-on-death documents to keep real estate and privately-held business interests out of probate). Since much of the estate plan deals with the business’s succession plan, we can break the fee down into what portion is business-related (and therefore deductible) and what portion is not.
If you have questions or want to chat with us, we’d love to hear from you. You can email Matt Gibson.