Small-business owners spend a lot of time, money and energy carving out their place in the market. Decades are invested in research, launch, marketing, customer relationships and expansion. But when it comes time to plan their estates, is it best for owners to sell or bequeath the business to their heirs? It can be difficult for entrepreneurs and small-business owners to separate themselves from what they’ve built. Often the immediate inclination is to pass on what took so much blood, sweat and tears to build. For business owners who are considering making an existing enterprise part of an estate, there are a few factors to consider.
Interest and motivation
First, business owners should objectively gauge the level of interest that their children or other heirs have in the business. Passion—or at least interest—is what drives business leadership, propels companies forward and helps them weather lean times. Do your heirs have the requisite interest in your business to rise to the challenge, or are they driven by very different passions and priorities? Are potential successors willing to be groomed for the business and become personally invested in its success?
Responsibilities and talents
Many brilliant children are not astute business people. We all know that running a business takes a rare mix of faith, financial discipline, obsessive attention to detail and round-the-clock care. If your business is your baby, ask yourself, “Would my heirs make good godparents?” Maybe your children each have different strengths and combined they would make a great leadership team for your business. Consider dividing the business equally and suggesting specific roles for each heir based upon their talents, experience or education.
Many business owners lead very private financial lives—even with their families. Estate planning mixes all the taboo topics like money, debt and death and challenges us to go public and talk about them. Having an open, honest and emotion-free conversation about planning for the inevitable can help clarify priorities and refine the details. If you’re considering bequeathing your business, discuss your thoughts with your loved ones and seek their input. Communication also helps prepare your heirs for responsibilities that may eventually come their way and can help them transition into future roles.
Once you’ve identified a successor for your business, it’s time to think about a skills-based succession plan that keeps pace with your retirement or reduced day-to-day involvement. Depending on the timing, the size of the company and how it’s currently managed, many business owners may choose to involve their heirs in the day-to-day operations in advance of any official bequest. This slower and more measured approach to handing over the reins can make for a smoother transition and a less bumpy business climate for both clients and employees. Heirs with little business experience can gradually acclimate to how the company is run, gain valuable leadership experience and begin to recognize new market opportunities.
There are many ways to transfer a business—both well-before and near the time of death. Business owners who’ve decided on their successors should speak with an attorney who specializes in estate planning to understand the specific implications of taxation, reorganizing the business management structure, setting up trusts and properly valuing assets.
Estate planning can be an emotional time for everyone. When there’s a family-owned business involved, the additional considerations and succession logistics only heighten the stress. But with a little communication and a lot of solid planning, you can pass on one of the most valuable gifts anyone can give their heirs—a thriving business that will continue to add to the prosperity of those you love.
Kentin Waits is a freelance writer and marketing specialist based in Portland, Ore. His work has been featured in US Airways magazine and top-rated blogs such as Wise Bread, the Consumerist and MSN SmartMoney. When he's not writing, Kentin runs a small online antiques business.
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