For many entrepreneurs, starting and growing a business is like raising a family. Although estate planning tools provide resources for ensuring the financial stability of a spouse and children, they may fall short when providing for the long-term care of a family-owned company.
As noted by Money magazine, including instructions in a will or trust for the continuation or dissolution of a business may help an owner plan ahead. An unexpected emergency may leave an entrepreneur incapacitated or fighting a serious illness. Without proper documentation on transferring or managing a business asset, an employee or spouse might take control of a company and prove unable to tend to its customers’ needs.
Companies can outlive their founders
The time and effort demands of running a business effectively may leave little room to plan for its succession. Identifying a suitable successor and training the individual to manage the business, however, may result in a company lasting and growing decades into the future.
As noted by Forbes magazine, establishing a continuity plan helps ensure the company remains in operation after its owner passes away. When thinking about one’s legacy, a business succession strategy may require merging it with an estate plan. If an owner expects an heir to take control of an enterprise, the training process may need to begin right away.
A sole proprietorship or partnership may require changes in a business structure so that an heir could have specific ownership rights. Depending on creditors, investors and partners, an enterprise may require a reorganization to continue. Existing debts or obligations might require negotiation so that an estate does not take responsibility for unexpected business expenses.
Documentation helps build an effective plan
Training a successor may require providing the chosen individual with authorization to begin making important decisions regarding property and assets. Financial and legal matters could benefit from documentation that grants an individual with the power of attorney to ensure he or she could carry out a business owner’s intentions.