By: Neil L. Wojtal
When a small business owner thinks about his/her business and planning for its future, the owner needs to consider planning not only for the business but for his/her needs as the owner.
Every small business owner should have four plans in place to cover all of these contingencies.
1. Business Plan – Every business should have a five year plan that addresses the business' needs for the next five years. This is often called a strategic plan. It enables a business to plan for growth by looking at staffing needs, capital equipment, vendor purchasing, space and location, competition and the business' response to changes in its particular industry. Many books have been written about business plans and there are strategists available who can help formulate such a plan. Note that all large businesses have such plans.
2. Contingency Plan – Most small businesses rely on a key person to run the business. This person is usually the owner. If this person is suddenly unavailable through illness or injury, what will happen to the business? How will the business continue to operate? In some instances family members are involved in the business but other times there is no involvement. The small business person must look at employee training and the company's talent pool and evaluate it. If necessary, strategic hires might be required to make sure the company can continue to run without the owner. Another alternative for a sole proprietor is an agreement with a friendly competitor who is also a sole proprietor. If he/she is unable to work, you will service his/her clients until he/she can get back to work and vice versa. The agreement would include a section that covers the return of clients once the emergency was over.
3. Exit Plan – Every small business should have a plan for the time when the owner decides he/she wants to leave. This could be for health reasons, personal lifestyle changes or simply to retire. The Exit Plan can include passing the company on to children, selling the company or offering the current employees a chance to take over the ownership of the company. There are many alternative Exit Plan strategies that can be explored. However, thinking about it and setting up a plan will take the uncertainty out of what happens to the company when the owner decides to leave and having a plan will provide peace of mind to the owner's family.
4. Estate Plan – This plan goes along with all the others. What happens to the company when the owner dies? How do you protect the equity you have built up in the company and pass it along to your to your family? This plan will allow you to preserve your investment while the other plans are put into action. You can appoint a personal representative that will help continue the business. That person can hire additional help to keep the business going until a decision is made concerning the future of the business. The plan can include a valuation model for the purpose of selling the business if that is necessary. In addition, if a son or daughter is involved in the business, a buyout can be worked out ahead of time to allow for the business to pass to the next generation. There are many alternatives that can and should be explored before the owner decides upon an estate plan. (more about estate planning)
I suggest that all business owners explore the above 4 plans and make some decisions to allow for the smooth transition of the business in the event of an unplanned absence, for retirement and to plan for your family upon your death.
This blog is designed for general information purposes only and should not be construed to be formal legal advice. You should consult an attorney for advice regarding your own situation. Although great care has been taken to ensure the accuracy and utility of the information contained in this blog, no warranty is made, express or implied, and Zimmerman & Steber Legal Group, LLC assumes no liability in connection with any use or result from use of the information contained herein.