Carve out some time for business succession planning

Scott R. Learned, The Daily Record Newswire

For many small business owners, the daily challenges of managing employees, monitoring finances, keeping customers happy, and watching for new opportunities for growth are all-consuming. Too few owners spend quality time contemplating a painful reality: at some point, the owner will become disabled or die. Without a sensible plan in place, all the effort put into creating the valuable firm could for naught. The business could die or, worse, become the subject of intense battles between would-be inheritors.

Somewhere between the staff meeting, the trip to the bank, and the marketing event, all small business owners (not just those nearing retirement) need to create or reevaluate their business succession plans. A sensible plan must ensure that the business can continue, or at least wind down successfully, in the absence of the owner in a way that protects stakeholders.

If the plan is to transfer the business to another family member or members (often the “plan” imposed by the State, if the business person hasn't made one), that plan is fraught with peril. If the surviving spouse or a child inherits the business, does that person have the experience, knowledge, drive, and determination to continue operating the business? Will sibling rivalries form or be rekindled where more than one child has an interest in the business? Did the inheriting child or children actually want to be involved in the business?

To achieve a sensible and effective business succession plan, a business owner must first establish goals for the business. Is it important to maintain family ownership and/or management? Does the business need to continue generating income to fund the owner’s retirement or period of disability? Are the owner’s goals reasonable and can they actually be carried out by the successor or successors? If the business will hire a manager to replace the owner, can it afford to do so? Does the owner simply want to liquidate the business, and is that a viable option? Is someone in place to transact that sale for the owner in case of death or disability? If there are partners involved, should the partners agree to buy each other out through a buy-sell agreement, or should the partners pass their ownership interests on to others?

Next, the owner needs to identify potential successors for managerial and ownership roles. The owner should be careful not to assume that loved ones are good choices. Perhaps the best managerial candidate is a current employee, who happens to be unrelated to the family. Just because the business owner was a jack-of-all-trades superhero does not mean that should be the expectation for future owners or managers. With multi-owner businesses, does it make sense for all surviving owners to take over the duties of the owner who became disable or died? Does the owner need to consider incentives to encourage key employees to remain while the business is in turmoil?

The owner should speak with all interested parties. If one child is chosen as manager, will that hurt another child’s feelings? If one child inherits the business and another child inherits the family home, will that breed resentment? If the surviving spouse inherits the business, will the children be upset if he or she liquidates the business? Often the only way to truly know the answers to these questions is to ask those who will be affected.

Finally, the owner should create the plan itself. The options include outright purchase, bequest, or gift during the owner’s lifetime. The owner needs to address taxation implications and liquidity issues involved in these strategies, and then must create the appropriate documents to formalize the plan, such as buy-sell agreements, wills or trust agreements, insurance contracts, and key-employee incentive plans.

Although business succession planning is often not a particularly enjoyable process, owners should immediately undertake these steps to ensure (to the maximum extent possible) the continued success of the business, even in the event of death or disability.


Scott R. Learned is a solo attorney in Boise, handling estate planning issues and a variety of litigation topics. He has been a member of the Idaho State Bar since 2001. In his spare time, Scott enjoys playing the drums, singing, competing in triathlons, and being a dad to his two young children.