This week I spoke about the importance of estate planning for small business owners at the Small Business Legal Roundtable organized by the Enterprise Center in Philadelphia. Because business owners often invest a large part of their profits back into their businesses, many lack substantial savings outside the company. For this reason, business owners often require more extensive estate planning to ensure their loved ones are taken care of.
It is critically important that the value of your business be preserved in the event you are no longer around to run it. Otherwise, the business may have to close until a buyer is located, causing its value to plummet. In order to ensure your business can be run without you, you should designate a person or persons whom you entrust with the information necessary to run the business for at least six months, during which time a buyer can be identified and a sale of the business can be completed. This requires sharing important information about running the business, such as bills payable, accounts receivable, and passwords to email and electronic bank accounts and website domains.
Businesses involving more than one family member can present other estate planning issues. If only one child is involved in the business, it may make sense for him or her to continue running it. In the absence of a carefully thought-out plan, however, the business will be transferred to all your children equally, including those who have no interest in it. Such an arrangement is likely to lead to family discord down the road. To prevent this problem, you may want to leave the business to the child who is involved in it and leave other assets, such as your house or life insurance proceeds, to the children who are not involved in the business.
If you’re a business owner, talking to an attorney who specializes in estate planning is essential. With proper planning, you can make sure the value of your business is preserved and your loved ones are taken care of.