Your business needs an estate plan | Hines & Maxwell, PLLC
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Your business needs an estate plan

For many entrepreneurs, the business they started from the ground up is considered their “baby.” All the blood, sweat and tears put in are worth it to watch it succeed.

So why don’t more businesses develop an estate plan for their business? People with significant assets and a family create a plan for how those assets and their loved ones are going to be taken care of after their death or in the event of their incapacitation. It stands to reason that business owners should do the same for their “babies.”

Business owners should start creating a plan for how the sale of a business should be handled now. This can help your family members in the event of your sudden death or impairment. If you are no longer able to run the business before an ownership transition can begin or while it is in the process of happening, it is important for your loved ones to know your wishes and how best to handle the process – especially if they don’t work in the business.

Succession planning

An estate plan for a business takes the form of succession planning. Business owners should think about who they want to run the business after them: a family member or another third party. Each route comes with its own unique challenges.

If you want to sell the business to a family member, begin planning early – roughly 70 percent of family-owned businesses fail or are sold before the second generation is able to take over, which is usually the result of insufficient or a complete lack of succession planning.

You should also be certain that your family member wants to own the business – start having those conversations early. Assuming they are interested, be prepared to have the process take some time: A smooth transition will likely take a business up to 10 years.

If you want to sell the business to a third party, the process is probably going to be faster but you will potentially be handing control of the business to someone you don’t know. Consider how you want to sell the business, either by selling the company’s assets completely or selling your own stock. Asset sales tend to be more beneficial to the buyer, but they are usually better structured for small businesses.

Regardless of how long you’ve been running the business, it’s always a good time to start mapping out a succession plan for the business and when you want it to initiate. Talk to a business attorney who can look at the best exit strategy for you and your retirement and help create a plan that will help your loved ones know how to take care of your “baby” when you’re gone.

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