I often hear business owners say, “I don’t need a business succession plan. I already know what is going to happen to my business”. This attitude could be very costly to business owners. Why? To answer this question, one needs to recognize certain problems.
I’m sure you realize that many tragic events could happen to derail your business. First there could be a tragic premature death to the owner or owners. When a business owner dies, oftentimes the business dies too. It isn’t that the owners have done anything wrong, it’s because nothing has been done, and that’s wrong. Think about this. If a friend owned a car or a home, one month after at his or her death, the value of the car or home would essentially be the same. But let’s say that friend owned a restaurant that didn’t reopen for a month or a doctor whose practice was closed for a month, what would the business be worth at the end of the month.
A death is not the only event that could decimate a business. What would happen to a business if the sole owner or a partner(s) suffered a severe accident or debilitating illness and couldn’t come to work? Could good will be compromised? Would sales drop? How would the business run and still pay a disabled worker a salary?
In both instances, the heirs of the deceased or disabled owner would want their fair or inflates share of the business. Or imagine them wanting to actively work in the business. These are only two events to seriously consider.
But let’s be positive and say owners after working hard for decades reach 65 or 70 and decide they either want to scale down or retire completely. How will this be handled? Is there a retirement plan in place? Or what if the owner wanted to sell his interests in the business, where would the money come from?
Other circumstances could cause serious complications. Divorce of an owner, incapacity, bankruptcy, termination of employment and an offer from an outside to buy their business are all other factors that must be considered.
A PROPERLY DRAFTED BUSINESS SUCCESSION PLAN CAN DEAL WITH THESE ISSUES.
Once you accept a problem exists, there are fortunately many viable solutions. In the weeks and months ahead we’ll explore solutions.