What happens to your small business after you’re suddenly no longer actively involved in it? Who, if anyone, is primed to step up and step into your shoes? It’s a scenario that most business owners know they should address at some point or another, but all too often put off until tomorrow – followed by many more tomorrows.
In reality, there are two kinds of businesses. One is the standard company that is actively participating in an industry, whether it be manufacturing or a service. The intent behind the business is presumably for-profit. In this type of company, there should definitely be a succession plan if something happens to you, the primary person who runs the business.
The other kind of business is a family company that may be an LLC, a partnership or corporation. For this type of business, the point behind it is more actually to manage and transfer the family's wealth rather than to actually fulfill a need of the general public – which is usually addressed as an estate planning issue upon initial formation of the business.
Who’s Best To Step In?
If you are actively involved in running the business, you need to make sure you have a plan to have someone as your backup who's going to take over for you if something happens to you, if you're incapacitated or if you pass away. It needs to be someone who has the technical knowledge to be able to keep up and presumably need to have a sense of business if you're on the management side.
If you are a licensed professional, such as an attorney or an accountant, you need to make sure that the person who's backing you up has that same license so they actually can legally function in the same capacity as you are. Make sure that it's someone who has more or less the same vision for the company that you do, assuming that that kind of legacy is important to you.
Then, once you have this person in place, they need to know that they are your backup. They need to be prepared to take over quickly. That means you need to either already have them involved on a day-to-day basis so that they can step right in or you need to have documents set aside, specifically for the case where you're suddenly no longer available, that have the information they need in order to step into your shoes.
What would be just some examples of those specific documents?
- A list of passwords
- Ongoing deals that the company has
- A list of key vendors
- Bank account numbers
- Credit cards
- Anything else that they need to have to keep the business running
It’s time to start assembling a package for this individual so that they can step in and perform seamlessly.
What Role Will They Have?
Another decision to be made is: Is this person who's going to be filling in for you going to be a manager while someone else becomes the owner or are they going to become both?
Let's say you want your spouse to have the income from your company, but you know they have no knowledge of the industry and are not interested in stepping in to deal with the business. In this event, you may decide to make them the owner so they get all the profits, but then have another person step in to effectively be the manager, CEO or President.
If you're going to do that, make sure you select carefully and that this person knows they're not going to become an owner – and make sure it's someone that your spouse can trust. Because if your spouse is that disinterested, they're not likely to pick up on someone who is doing business “outside the lines.” Therefore, in that circumstance, it might be good to make plans for auditing on a regular basis to put safeguards in place.
This last issue may not be a concern if the new management is also going to be the new ownership, because then they have a personal incentive not to harm the business. If you already have an heir apparent in the business working in the business day-to-day, it's probably a very good way to inspire loyalty and get them to do things right. This way, they know their decisions are going to have a significant impact on their own finances in the future.
Having clarity on the next era of your business and what the transition of ownership will entail isn’t a plan you can continually push down the road. Talk to the estate planning attorneys of Gurney Law Group, LLC today about the best succession options available to you so you make wise choices on the next leader of your company and plan for what your life after the business looks like. To arrange an initial consultation with us, call 312.929.0974.