Business Succession Planning
Many small-business owners haven’t decided who will take over their business upon their retirement.
Some business owners may not want to explore some of the difficult questions that business succession planning may require. But with no formal succession plan in place, a business may fail, and family members could be burdened with complicated legal and tax matters.
Lusk Law, LLC, specializes in assisting owners of small businesses to plan for the future. Whether you’re preparing to launch your first business or you’re a seasoned entrepreneur, we can provide legal guidance on the issues that are most important for your success. Contact us today to request a consultation: 443-535-9715.
Barriers to Business Succession Planning
In 2016, Harris Poll conducted an online survey of small-business owners age 18 to 65, on the behalf of Nationwide Insurance Company. Owners of 502 businesses with fewer than 300 employees participated in the poll.
The poll revealed that three of five business owners had no succession plan. Of those respondents without business succession plans, their reasons were:
- Didn’t think a succession plan was necessary (47 percent)
- Not wanting to give up their business (14 percent)
- Not knowing when to create a succession plan (11 percent)
- Not knowing whom to consult to create a plan (11 percent)
- Lacking the time to develop a plan (11 percent)
- Being overwhelmed with government regulations (8 percent).
(These response percentages amount to 102 percent, meaning some people listed more than one reason for having no succession plan).
It’s true that creating a succession plan can seem like a daunting task. That’s why entrepreneurs need the help of an experienced business attorney.
How Assumptions Can Sink a Business
Family businesses account for 50 percent of the national gross domestic product and are responsible for about 60 percent of jobs nationwide. These businesses clearly play an important role in the economy, but about half of current owners lack confidence that their children would be able to successfully run their companies.
When you create a succession plan, that process forces you to think about family matters. Some business owners may assume their children want to take control of the business at some point, when, in fact, their children have no interest in that. Owners may also feel obligated to name a child or other family member as a successor, even if that person lacks business acumen.
Ideally, business owners should, before retiring, train their successor for 15 years. Considering that, it’s sometimes best to leave one’s business in the hands of a trusted, long-term employee who’s already familiar with day-to-day operations. That’s what hotelier J.W. Marriott did in 2012, when he named one of his veteran executives his CEO. Asked why he didn’t choose his own son to take over the company, Marriott said his son – who had been with the company for 30 years – didn’t love his job and wasn’t excited about the responsibilities that would accompany being CEO.
Regardless of who the successor will be, business owners should put in writing the specific roles of any family members who will or won’t be involved in business operations and decision-making. For example, family members could remain majority stockholders, but not be involved in daily decision-making for the business.
Preparing for the Unexpected
One aspect of succession planning that may be difficult is thinking about what would happen to your business, should you suffer a disability or die. But preparing for such scenarios is important, because if you don’t, your family members would have to make those decisions. And they may be unprepared to deal with both your personal estate and your business assets.
You may need more than one person to help you with your succession plan.
A business attorney can help you with the legal framework of succession planning and can also advise you to seek help from an accountant, a wealth management advisor, or someone with expertise in tax and probate issues. Involving the right people in your succession planning will help you prepare for any eventuality.
Getting the Guidance You Need
As the owner of two small businesses, attorney Rebekah Damen Lusk understands the challenges entrepreneurs may face. At her Frederick County office, she has helped small-business owners from many parts of Maryland navigate the legal issues of operating a company, and she has represented clients in court when litigation was necessary. Get started on your succession planning today by contacting Lusk Law, LLC – either online or at 443-535-9715.
Our Legal Services
What Freelancers and Small Businesses Should Know About Liability
If you are a small-business owner or a freelancer, you most likely don’t have deep pockets to reach into if you get sued and lose your case. As the…
Legal Considerations for Debt Collection, Explained
You work hard, provide a service, and take pride in what you do. Not only is it frustrating when your invoices go unpaid, it puts your company at risk.…