Succession planning for entrepreneurs

Entrepreneurs work hard to establish their business and spend a lot of time planning for the future; from dreaming up new products, to expanding into new markets or recruiting more staff. But one vital aspect of planning is often neglected. It is the need to plan for business succession should something happen to them.

No one wants to think about the worst happening, especially when they have just set up a business, but it can be costly, both emotionally and financially, if entrepreneurs avoid planning for the future.

It is human nature to avoid thinking about these things but putting a plan in place does not make it more likely to happen. What it will do is give you peace of mind.

Think of it this way. Most entrepreneurs cannot, or do not, wish to imagine being unable to control their business. However, proper estate planning allows this to happen as it helps family members and business partners to be clear on the business owner’s wishes.

Planning for the future

The first step is to think about what you want to happen to your business and who you want to run it.

Then it is vital to make a Will. This should outline what you want to happen to your business, or your share of a business. 

Without a Will your business or shareholding could pass to someone who has no interest in getting involved in the business, or someone who does not have the right skills to run it. Having no Will also means that inheritance disputes are more likely to happen. All of these outcomes are likely to have a detrimental impact on the value of the business.

How your business is set up makes a difference. For Sole Traders, your business will become part of your estate. Executors will distribute assets in accordance with your Will, or if there is no Will in place, assets will be distributed by administrators according to the intestacy rules. It will be much harder to start the business up again without a Will.

For partnerships, the options available to executors or administrators of the estate will depend on the existing partnership agreement.

It is also important to get sound tax advice to maximise the tax efficiencies. Establishing the correct tax structures, such as offshore entities and trusts, safeguarded by a Will, could be the best way to “future proof” those tax advantages.

Avoiding disputes

Inheritance disputes are costly and expensive. Many disputes could be avoided if the business owner is open about their plans and what they want to happen to the business.

Disputes over inheritance are more likely to happen where there are family issues that have not been addressed. If you know there are tensions, it is much better to address these and sort them out, so family members know where they stand. Something as simple as deciding who the shares of the company should go to upon death can save a lot of headaches.

Everyone’s situation is unique, and it is important to seek professional support to put the structures in place that will achieve what you want for your business. That will give you peace of mind to focus on growing your business and achieving your business dreams.