When you start a business, it’s easy to get lost in the details of planning, creating, and eventually growing your idea into a viable company. However, many entrepreneurs fail to consider what would happen to their company if they haven’t created an estate plan.
If you suffer a serious illness, have a major accident, or die suddenly, what would happen to the business you’ve worked so hard to build? What will happen to your loved-ones who rely on your business income?
An estate plan should be considered an essential document in your entrepreneurial journey, and owners of businesses of all sizes. That’s why it is important to take the time and think about the worst-case scenarios in order to prevent these from occurring.
What could happen if you don’t have an estate plan?
In short, if you don’t have an estate plan then you cannot be certain what will happen to your assets or your business should you die or become otherwise incapable, such as through illness or a serious injury.
Without an estate plan, the decisions regarding the redistribution of assets and responsibilities are made by the courts and things can quickly become complicated. Each state in Australia has its own legislation in regard to succession and wills, and it’s this legislation that determines the outcome.
In the absence of a clear estate plan arguments may quickly arise. Heirs can dispute claims, legal fees can quickly add up, and the business you’ve worked so hard to create could crumble shortly after you cease to be involved.
Avoid what could very well end up being an emotional and financial mess for your loved ones and create an estate plan that ensures your assets and business continue on after you’ve gone.
4 essential things entrepreneurs should include in an estate plan
If you are an entrepreneur or small business owner and you do not have an estate plan or a will, it could be a good idea to consider creating one. If you haven’t created a will, here are four important factors do right now.
Write a will
Every family has a story about a messy dispute that occurred after a family member passed away. The scale of these disputes can quickly rise if the dispute is over a considerable amount of money and assets or a business. This is why creating a will goes a long way in providing a clear path for asset redistribution.
As well as including the transfer of personal effects to certain individuals, your will as a business owner should include information as to what will happen to your business and should include identifying an individual to take over your business or shares.
Another important thing to include in determining an “executor” of the will. An executor is someone that is named in a will (or appointed by the courts) that is given the legal responsibility to manage a deceased person’s estate.
Create a succession plan
If you wish for your business to continue into the future, you will need to create a succession plan.
A succession plan ensures a smooth transition to the appointed individual and also provides a clear picture as to how to successfully run the business after you’re gone. If you wish for the company to be sold or shut down, this should be clearly detailed and a plan should be provided as to how this is to happen.
Once you have identified an individual to take control of the company, you should outline exactly when your business will be transferred to him/her and how it will be transferred.
Giving someone else legal authority
Another essential inclusion in your estate plan is to ensure that someone else (such as the individual you wish to transfer the business too) is able to sign for the business’s bank account.
Without a clearly outlined signing authority, it can take a long time for the paperwork to get completed to change the signing authority. The time taken to get this changed could be to the business’s detriment, as things such as paying bills, payroll, and other expenses may rely on it.
Draft a buy-sell agreement
If you co-own or have a part-share in the business, you should draft a buy-sell agreement. A buy-sell agreement is a contract that is entered into between the partners of a business and details what should happen to a partner’s share of the company should he or she die or become otherwise incapable.
If your shares become available and you do not have a buy-sell agreement in place, you’ll have no control over what happens to your ‘vacant’ shares.
A buy-sell agreement, also known as a “buyout agreement,” which provides guidance on how much your shares can be sold for and who has the first option to buy your shares.
It is vital that you start considering what you would like to happen to your business and your assets should the unthinkable happen.
By outlining a clear will, a detailed succession plan, outlining a signing authority and drafting a buy-sell agreement, you will help your loved ones prepare for the future in what will be a distressing and emotional time.
Luke Fitzpatrick is an academic speaker at Sydney University via Glecture. He enjoys writing about tech, productivity, lifestyle, and is a contributor to Forbes.