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Burlington, VT office 802.540.0529
Hanover, NH office 603.643.6072
Rutland, VT office 802.773.3822
Woodstock, VT office 802.457.9492

October 29, 2013 Newsletter Archive


Successful Transitions: Can My Business Survive If I Don't?

If you are a successful small business owner, you have weathered many a storm regarding markets and management, products and performance. You have built your business so that you can take care of yourself and your family today and into the future. You are proud of your accomplishments, but most likely, you are not prepared to rest on your laurels.

You may have pondered the complexities of trying to take an extended vacation, or entering into a semi-retirement where you do not need to be as present on a daily basis. You may have even wondered what would happen to your business if you can no longer manage its day-to-day operations. These questions and many similar ones make up a niggling frustration for the small business owner; is there a way to transition away from my business, at my own pace, in my own way, that will leave the business thriving so that its successors will have the tools they need to continue its viability?

Small business owners are abundant in Vermont and New Hampshire, and make up a large group of our clients. They are often passionate, fearless, very independent, hardworking individuals who may have considered life's "what if's" but are too busy to really give the answers to these questions much time.

These individuals come to see us to assist them with the broader and deeper discussions about what to do if they ever wished to slow down their day-to-day administrative functions, what would happen if they became disabled and when they died. In short, our clients want to understand how to transition their businesses for a variety of eventualities.

A formal Business Transition Plan involves a combination of your estate plan along with a business succession plan. The Transition Plan serves as your business' blue print for your heirs, partners and other successors and is designed to accommodate for your retirement, potential disability and eventual death. In this plan you may outline

There is an overarching two-fold process in successfully outlining a business transition plan. First, you should consider your values and goals for your company while honestly assessing its current human and financial capital. You should consider what role you want to play in your transition. Among the questions you might ask: do you wish to maintain much of the control or wish to transition this as well? What of your personal financial goals? Have they been reached yet, and if not, what will it take for you to reach them? Once you clarify your values, goals and the vision that you seek for this transition, you must be able to convey that to your advisors, family members, business partners, and crucial employees that need to be retained.

Below, we have put together a list of further considerations as you assess your business' viability without you at the helm.

Identify the successor you wish to have. You do not necessarily have to identify the specific person first. In fact, it may be optimal to identify the type of person you seek just as you might do if you were hiring for this new position. Who are you looking for to fill just this role? What values do you seek in this individual that mirror your own? What role will this person play and how will they fit into the corporate culture you created?

This is by far the most difficult task before you. As a business owner you have the firsthand knowledge of your business and you are, by far, the most dedicated person at your company, and the most passionate about its success. Finding a replacement for that level of enthusiasm is difficult, and perhaps impossible, but it is essential to understand that you must find one or more individuals "out there" who will be committed, driven and willing to strive to continue or even optimize the success and viability of your business.

Motivate, educate and compensate the next generation of leaders of the business. Structure your employment arrangements to keep the people that are important to the business motivated and involved, assuring that they are ready to step-up when the time comes.

Acknowledge and accept that good estate planning is one of the important tasks of a business owner, as much as meeting payroll and filing income tax returns. Every small business owner needs an estate plan to address a variety of scenarios and allow you the peace of mind that virtually all eventualities are addressed.

Keep records of your important contact people and passwords. While we must maintain security around passwords, it is important to make sure that someone, your agent, your attorney, someone who will be available should you not be able to act, has this information. All too often a business owner or family member dies and does not leave password information readily available for the executor of the will, costing the estate and business time and money, creating anything but a smooth transition and potentially jeopardizing the business' viability.

Consider purchasing life insurance, or providing some other funding source which allows the business to bring in needed professionals in the event of a calamity.

Prepare a buy-sell agreement. This is particularly vital if you have multiple business owners. It is imperative to address issues in writing prior to a crisis arising.

Consider your family situation, your values, your children's values and goals, and your personal aspirations for division of your assets among heirs. It is crucial to understand your overall wealth in order to better assess asset distribution.

Understand the value of your business. Your business has value because it manufactures a unique product or has a provenance that is worth something outside of the assets of the business itself. In order to understand the depth of its value, find an appraiser who understands your business and your market.

Remember to update your planning. Time has a way of moving along while we are busy working. Suddenly, you realize that the last time you reviewed your business and estate plans was eight years ago. Since then, your children have finished college, perhaps one is married, perhaps you have a new grandchild, or perhaps you have faced family illnesses or deaths. Just as life has many twists and turns, so does the ebb and flow of a business. The person you named eight years ago to move into the business management role may be unavailable, unwilling or inappropriate in the current operations of the business. Accordingly, it is optimal to review your business succession plan, as well as your overall estate plan, every few years.

Maintain good tax filings, business records and your business status. Nothing can be more challenging for a successor manager than to take over operations only to learn that records have been poorly maintained, taxes have been improperly filed, or a business entity status has been terminated for failing to file annual reports with the state corporation division. If your business has been successful, it is likely that you have been organized and well systematized in your record keeping. However, you want to make sure that you allow for your successor to understand the processes and systems that you have put in place to help keep you on track so that he or she does not become overwhelmed or bogged down in the minutia of reinventing the wheels of the organization.

Make sure that your Health Care Power of Attorney (Advance Directive for Health Care) is up to date.

Understand the impact of federal and state estate tax laws. Familiarize yourself with tax deductions, including marital deductions, exemptions, exclusions and charitable contributions.

Even the most savvy business owner needs to prepare for the unexpected and unpleasant events in life. You did not become successful because you dwelled on the idea that you one day would be unable to manage your routine business affairs. However, it is clear that as we live longer, and as older business owners seek to keep their businesses going, protecting those business assets becomes vital.

Seeking professional advice is important, and in addition to legal help, talking with tax and financial professionals will also be necessary. Ideally, as a small business owner, you have a group of trusted advisors, including an attorney knowledgeable in succession planning, tax matters, and estate planning, to help guide you through the process of planning for transitions.

Disclaimer
This newsletter is made available by the lawyer or law firm publisher for educational purposes only, to give you general information and a general understanding of the law, but not to provide specific legal advice. No representation is made about the accuracy of the information. Discussed topics may or may not be updated subsequent to their initial posting for changes in applicable laws. Please note that information in this newsletter may change from time to time. In reading this newsletter you understand that this information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. This site should not be used as a substitute for competent legal advice from a licensed attorney in your state.

We would love to hear from you! If you are interested in guest writing for our newsletter or simply have a comment to share, please let us know.


Melendy Moritz PLLC is a client centered boutique firm. We focus on your unique needs by providing the individualized legal counseling and advising tailored to your specific situation.

We concentrate on the planning that matters to you.
Call us at 603.643.6072 or 802.457.9492

 

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