What happens to your business when you pass away?
You’ve spent years trying to get your business off of the ground. It took a lot of dedication and blood, sweat and tears. It would be a shame for the business to evaporate if you were to pass away. If you want that hard work to mean something after you’re gone, then you do have to take some measures and do some planning. Have you ever thought about what would happen to your business if you die or become critically ill and can't manage it yourself?
If you have a small business in which you are the CEO, accountant, and even janitor then your business likely won’t survive without you. It makes sense to make some moves ahead of time to prevent it from dissolving completely.
In this article, we will go over what you can do to make sure the business, and your loved ones, is taken care of in the event of your passing.
In your personal life you have likely already made contingency plans by hiring a firm like Frame & Frame estate planners to craft your last will and testament and a living will. These are directives that dictate to others in charge of your estate how to distribute your assets and what to do in case you are capacitated.
Having succession planning is like the business version of doing that. It is a plan on what happens if you are suddenly not at the helm of the business. Whether it is for good, or just temporary.
You have two basic choices when it comes to succession. The first option is to have somebody with power of attorney sell the business and then distribute the profits to your family or whoever you decide to have as beneficiaries. The second is to have somebody placed in charge and for the business to continue without you.
What is succession planning?
Business succession planning is a process that helps the owners of a company to prepare for the inevitable. With this process, business owners and their successors can collaborate on developing strategies to keep the company running smoothly while taking into account new responsibilities.
Succession planning is not just useful in terms of knowing how to manage a business on the event of an unfortunate death in leadership, but it’s also useful for the overall future growth of a company if you have partners and staff members. Succession planning is the process of identifying and developing an organisation's next generation of leaders.
Succession planning is a strategy that an organisation can use to make sure that their operations don't collapse when an individual retires, leaves the company or on the event of their death. It helps a business plan for the future and prepare for potential changes in leadership.
What happens without succession planning?
Unless you put a plan in place, then if you are a sole trader, your business essentially dies with you. You and your business are one, they are not seen by the law as separate. Any assets owned by you becomes part of your estate and pass on to the beneficiaries of your personal will. If people don't know about your digital assets or how to manage them, then likely they will not renew at the next host renewal date and will disappear for good.
Many of you likely have a digital business like a blog or websites that make your money that will be considered digital assets and likely sold. There are end of life planners for digital properties and social media so if you decide to continue the business, they can help you put a chosen successor in charge and enable you to leave passwords and other important information.
If you wish to pass your blog and social media accounts onto another person on the event of your death, perhaps someone you know in the same sector as you who can take over their management and gain income from them, then you will need to let them know and make your wishes known in your will.
If you are in a partnership or have set up a limited company then the business doesn’t have to end on the event of a partner or owner passing away. The business is seen as its own legal entity. Make sure you have succession planning in place should a partner or owner die. Otherwise the deceased partner’s share will go to their estate and they could sell their share of the business to a third party instead of one of the remaining partners.
Or perhaps the remaining partners can’t afford to purchase the deceased person’s share of the business. This is why it is vital to talk about how you would want your business to run on the event of your death with all people involved whilst you are still alive and to put a formal, legal plan in place.
Things to consider if you don’t plan
If you are taking your time to figure out what to do and aren’t sure if you will pull the trigger and create a plan, then don’t take too long to figure it out. To help spur you on we will go over what happens when you don’t have a plan.
What if your business is the primary income for your family? If you were to pass away suddenly, then would this money still go to your family? How do you know if it will? There has to be somebody to make sure that your wishes are met. They also have to know what your wishes are.
Just telling somebody what to do is not going to be enough. There are legal issues to take into consideration and until the legal process shakes out, your money will be in limbo. Your family’s financial situation could be put into a precarious position.
Succession planning is important because it ensures that an organisation does not lose momentum after someone has passed away. This is especially true if the person who died was a founder, as they are often the backbone and lifeblood of any company or organisation.
Every organisation needs to have succession planning in place to ensure they never have a talent crisis. Without this in place, organisations can be left scrambling for someone who can step up and take over the responsibilities of the deceased.
Without a succession plan in place, a successful company can be lost after the death of a founder. One way to prevent this from happening is by choosing a successor who has already been working for the company and knows all of its ins and outs.
Seek legal advice and complete the legal documentation to ensure your wishes are met
Securing your business during its life and also in the event of your death is important. Make sure you seek legal advice with regards to your small business upon the event of your death to ensure your wishes are met and any money from a sale or continuation of profits will go exactly where you want.
Just as it’s important to ensure you have a will in place for your own estate, make sure you have succession planning in place for your small business.