Recently, I engaged in a little “social media research” scrolling through Facebook, and a post from Humans of New York caught my eye. The post featured the story of a woman who had been running her own interior design business when a car crash on her way to work wrecked her health and nearly wrecked her business. What can a business owner do to plan for how the business could continue if something happens to the owner when, as is true for many small businesses, they are the only one running the show? In addition to adequate insurance, a solid business succession plan is key in helping a business to weather a storm when the sole owner is suddenly tossed out of the picture, whether not that absence is temporary.
A business succession plan is a plan for transferring ownership and management of a business when the owner is no longer in charge, whether that absence is due to death, disability (permanent or temporary), or retirement. In my prior posts in this series, I wrote about basic considerations for business owners in succession planning and special considerations in succession planning for businesses with more than one owner. In the final post in this series, I will discuss special considerations in succession planning for family businesses. In this post, I address considerations in business succession planning for business owners who are the sole owner (and often the sole employee) of the business.
Having a succession plan in place that anticipates how a business would handle the owner’s unexpected absence, a sale of the business, or retirement are all part of running a stable and successful business. When a business has a single owner responsible for all, or substantially all, of its operations, it is important for the owner to consider what would happen to the business if catastrophe struck. The first step is identifying who would make sure that work in progress was completed in a timely manner, if possible, or contact clients to explain why delivery would be delayed. For a single-person shop, this might be a family member, an employee, or even a competitor working in the same industry who would be able to complete any work-in-progress.
After identifying who would be in charge, the next step for a business owner is to consult with an attorney regarding what legal documents are appropriate to delegate the authority to run or manage the business. For some business owners, appointing an agent in a General Durable Power of Attorney who would handle their business and personal affairs is enough. For many, however, a more targeted Limited Power of Attorney, appointing an agent to handle business affairs under specific circumstances, might be appropriate. In addition, a small business owner should consider how they would like their family to handle the sale or winding down of the business in the event of their death or permanent disability. Is it even something that can be handled by a family member, or does an employee or colleague more familiar with the business or the industry need to be appointed?
Finally, communication is key. Not only should a business owner communicate to anyone they appoint to serve as their agent on behalf of the business in any durable power of attorney document about such appointment, they should also communicate their delegation of responsibility for the business to their family or employees. Another component of communication is adequate organization. A business owner should take a hard look around the office and consider whether files and records are organized in a manner where a fiduciary stepping in to take over in an emergency would understand what to do, what money the business owes to vendors, and what money is due to the business from customers. If not, it might be time for a bit of tidying up.
Part of having a business succession plan is being prepared for the unexpected. Ready to discuss your business succession plan? We can help!
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