By Iris Buczkowski
Owning a business is a lot of work. If you are a small business owner it can even be more intense because of the multiple hats you wear while running your company. The investment of time you commit upon establishing a company is substantial. Building a solid team both internally and externally is essential for success and this should include your attorney, accountant, and financial advisor. Owning a business can be the most exciting and rewarding experiences you may have, but have you considered what happens to your company if you are gone or can no longer work? How have you protected this incredible asset you have built? When you are ready to retire what is your exit strategy?
Small businesses can come in many shapes and sizes. It doesn’t matter if you are a sole proprietor or an entity with multiple owners or partners, the importance of proper business succession planning is critical. You likely want to make sure that you have business continuity if you cannot work and your interest provides a return to you and your family if something were to happen to you. Consider the following:
- Have an adequate and updated buy/sell agreement in place for your company. If you have a multiple ownership structure this is essential in the event of a death or a disability. You will need the services of an attorney who specializes in business law to construct these agreements.
- Fund your agreements once they are executed. New businesses often don’t have the cash flow to provide large payouts in the event of a death or replacement income in the event of a disability. Buy/sell agreements are often funded through insurance to cover these obligations. Work with your financial advisor and accountant to determine the most appropriate type and level of coverage that should be maintained over time.
- Use key-person life insurance where appropriate if you are a sole owner or you have key employees who are essential to the continual operations of your business. Term insurance is often a good fit here as you can secure a large amount of coverage for very little cost.
- Make sure to have your business formally valuated on a routine basis. This is often one area that is overlooked because although you have financial statements prepared annually, that is not the same as what the fair market value of your company would be if it were to be sold. Many industries that have a niche product or service have to look for specialized providers to have this work completed. The valuations become a key part of your estate planning as well.
- Identify potential succession candidates as you grow. Nobody wants to work forever and we definitely do not live forever. If you want to see your company survive beyond you, building a solid team that can step in to run your company over time is the first step to accomplishing that goal.
There are a lot of rewards that come with being a business owner. The development of your product or service and the relationships you build along the way can be some of the most meaningful you will experience in your lifetime. If you are mindful about having an exit strategy, whether it is voluntary or not, you will have protected yourself, your loved ones, your employees and your clientele. That is a true measure of success.
