If you have invested significant amounts of your own time, money and mental energy in the creation of a business, you likely feel significant pride in your achievement. Some people even compare a company they built to their children.
It’s common for people to want to keep their business in the family, but all too often, business owners don’t adequately plan for the transfer of ownership and responsibilities.
Even if you currently plan to continue working for years or decades, having ownership transfer rules in place and succession planning completed will ensure that someone you trust can step into your role easily when the time comes.
Just transferring the business when you die may be a mistake
If you are the sole proprietor or owner of the business, it may seem like the simplest solution to arrange for the business to transfer directly to a member of your family in a last will. However, circumstances could arise where you are neither dead nor capable of managing the business.
Creating power of attorney documents for a child, spouse or other loved one that you trust with the management of your business can ensure that the business operations continue even if you are unable to make decisions.
If you are not the sole proprietor, the gradual transfer of ownership interest, such as shares, may be a better option than a transfer as part of your estate. The exact solution you use will depend on the structure of your business and the relationship you have with the person who will assume control over the company.
Your successor needs guidance, not just ownership rights
Another common mistake among those preparing to transfer their business to someone is to focus only on ownership or legal authority and not on knowledge and information. From the location of your banking accounts to the passwords you use to log into vendor websites, there is a lot of information about running your business that only you have.
Creating a succession plan involves committing all of that information to writing and detailing all of the responsibilities you have to the business. In theory, a succession plan should be thorough enough to allow someone to review it and then step immediately into your role with the business.
Planning for the transfer of both managerial authority and knowledge now can help ensure that your wishes and your business have protection regardless of what happens to you.
