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.
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.
