Succession planning tips for small business owners
How many different tasks do you do in one day as a business owner? You meet three clients, work on marketing projects, pay bills that have come due, responded to dozen emails from prospective clients and read several articles to stay current in your field. And that's just Monday.
Now, what would happen if you were no longer there? Who steps in if you have an injury, or unexpectedly pass away? What happens to your clients? For most small business owners, your business would come to a halt. It's critical every business owner imagines the world in which they can no longer work, and puts a plan in place to ensure their wishes are met.
That may mean having both an estate plan and a succession plan. So what’s the difference? "Succession and estate planning are related, and there is some crossover, but each has unique goals," says Justin Castelli, founder of RLS Wealth Management. "Succession planning is about continuing the business and may or may not be within your family, whereas estate planning is all about your family being protected and taken care of."
Here are some components of a good succession plan: [1
9659005] A written continuity plan
As a small business owner, there are dozens of tasks that you know and how to do. How is your payroll run? Where are the records kept? What is the code to the safe that keeps vital documents? Where is the list of every vendor you work with?
"It's critical for small business owners to consider what happens to valuable information if they pass away," says Justin Pritchard, a financial planner and founder of Approach Financial, Inc. " It's wise to take steps to ensure that a trusted person can access business records, bank accounts and mission-critical systems. That may be a spouse or partner, a key employee, or another trustworthy contact. ”
This plan should be shared with relevant parties, and updated at least annually to make sure it matches your wishes and accounts for the current state of your business.
Powers of attorney
Work with your attorney to name a person in your continuity plan as having legal power of attorney for the business, meaning they can step in and act on your behalf in matters related to your business. And, unless your spouse is already involved in your business, you might want to be someone who is not your grieving spouse.
A password manager
Given how many different software applications are most businesses use, accessing those systems will be Crucial. A password manager securely stores your passwords in an encrypted vault. Most password managers also have a feature that gives you access to specified individuals. If you name it as power of attorney, you should be granted access to any passwords and login credentials that you need to enter into your role in running your business.
Life insurance is a financial safety net for your partner, your kids, your life …
A written operating agreement
The tips above apply to anyone who owns a small business. But, if you own a business with a partner, or multiple partners, there are additional complexities you must plan for, such as:
multiple owners. An operating agreement is a legal document which dictates how the business operates. How will profits be split? How will it be decided between owners? Who has decision making power over what areas? What happens if one partner wants to sell their business in the business?
All of these questions are best addressed ahead of time, rather than waiting until your hand is forced. The agreement should be drawn up by an attorney, and regularly revised as the business grows and changes. Life insurance
Couples purchase life insurance so if one spouse passes, the other can use updates as your business evolves. the death benefit to help pay for living expenses despite the loss of income.
In a business, your business partner (or partners) is like your spouse, and they will have a major disruption if you pass away. This is why business partners may want to purchase an amount of life insurance coverage that could help either buy them the other owners share of the business ..
Life insurance coverage is usually part of a cross-purchase agreement or an agreement for each partner to buy the other's shares in the business if the other passes away.
An estate plan
An estate plan for a small business owner -date will, and adequate life insurance. But there are some unique things to think about if you are a small business owner.
An up-to-date will
A will is the legal document that dictates how you want your assets divided upon your death. This is especially important for a small business owner, because you can have more than one estate to spouse / only child. ”
Castelli gift the following example:“ I have three boys. They're young now, but let's say if they grow older and are legal adults, Leo decides wants to join me in the family business, but Silas and Roman have other careers. If thats the case, you need to figure out how to leave my assets to them fairly given that Leo would benefit from inheriting the business. For example, this is just one example, and each situation is different, so you'll want to work with an attorney to craft a will that meets your specific needs.
As an added feature for those who have life insurance protection in place with a haven term policy issued by MassMutual, the Haven Life Plus rider, included with the Haven Term policy, offers access to a digital will for policyholders and their partners at no cost from Trust & Will. With the service, you can create your business in minutes, and online anytime.
Many business owners spend their lives building their business. But make sure both your business and your family are no longer involved in good succession planning.
Ryan Frailich, a CERTIFIED FINANCIAL PLANNER ™ professional, runs Deliberate Finances, a fee-only financial planning firm which specializes in helping young couples and educators plan for their financial lives. When not working, Ryan is exploring New Orleans, running with his dog Dodger, or building block towers with his young son. Opinions are his own. This article is sponsored by Haven Life Insurance Agency.
The information provided is not intended as specific tax or legal advice. Port Life Insurance Agency does not provide tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
Port Life Plus (Plus) is the marketing name for the Plus rider which is included as part of the Haven Term policy. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the commission of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners).
Haven Term is a Term Life Insurance Policy (ICC17DTC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111 and offered exclusively through Port Life Insurance Agency, LLC. Policy and rider numbers and features may vary by state and may not be available in all states. In New York, Harbor Term is DTC-NY 1017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.