Succession and Estate Planning
Building and operating a business is, by any metrics, a big feat to accomplish. It often takes time, sacrifice, and incessant perseverance to run a successful, income-generating business. That being the case, one important aspect of business that entrepreneurs should consider lies in not only maintaining in their business, but considering how it will be handled once they are no longer around to run it. To think ahead, and to make sure that the fruits of their labors are not squandered, business owners can develop succession and estate plans that will
Succession Planning
Succession planning involves identifying and selecting new candidates that can replace older leaders in a business when they retire or pass away. Succession plans can account solely for a new owner to take over operations, or can have provisions in place to have employees take over newly vacant management positions. For smooth and conflict-free succession, there must be clear coordination between owners and management as well as employees regarding those involved in taking new roles. For small and medium-sized businesses, candidates for succession tend to be close friends or family members, although anyone that you see fit for the position can qualify.
Estate Planning
As opposed to succession planning which focuses on delegating managerial and ownership positions, estate planning deals with the distribution of assets. With regard to business, entrepreneurs and business owners must decide how they want their assets to be distributed upon their death. As with any typical business, owners can decide to close their company and sell it off, pass on the entire company to a beneficiary, or distribute ownership of the company to several beneficiaries through a living trust.
Importance of Both Plans
Both plans are equally important to keep a business running. To truly understand their importance, one should consider the consequences of not having a succession plan. Without a succession plan, there will be no clear indication of who the leader of the business is. Without leadership, a business may lose its direction and goal, leading to a loss of faith and job security among the employees. A lack of a succession plan can also create a power struggle among family members that would want to assume control of the business. Therefore, it is very damaging to the business overall to not have a clear leader take charge. Additionally, without an estate plan, you would not be able to avoid unnecessary tax liabilities. Without these documents, your assets will be distributed through the court, meaning everything will have to pass through probate. This is a costly and lengthy process, so it is best for everyone if it can be avoided.
While neither are critical for a business to be run in the short term, both are crucial for the success of your firm in the long run. Without a succession plan, your business will lack a sense of direction for employees and managers once the owner(s) retire or pass away. Without leadership, a business could face unnecessary conflict and operational difficulty, which, needless to say, is detrimental for any business. Without a proper estate plan in place, you as the business owner risk conflict among your loved ones if instructions aren’t laid out regarding the distribution of rights to the business. Alternatively, if you don’t lay out a plan for what should happen to the business after your death, it’s possible that your loved ones may take action that’s not consistent with what you would have wanted regarding how your business should be dealt with.