To hand over a business to another person is a complex situation that requires careful planning and adjustments based on the suitability of the person or group picked by the owner. Planning the succession could lead to the owner trying certain individuals out or handing it over to management while the owner researches the best fit.
Some of the worst possible mistakes occur when the business owner plans or does not plan on his or her succession of the business. Passing a company or entity on to someone else is important to keep the company or organization alive. If the owner wants to see his or her business thrive and continue, he or she must pass it to someone that will manage it well. Most often, this is not a child or dependent in the family but someone that was already running or managing the company. It is important not to delay plans or find someone too late. Legal help is often necessary for documentation and paperwork.
The Mistake in a Delay
One of the worst things to do in any business is to delay. Owners may not have the luxury of time. If the business owner dies before he or she plans on the succession, the company could fall without legal processes in place. Planning at the last minute could cost the person valuable time or lead to holes in the paperwork. The importance of planning early is lost on many business owners. However, if the person does plan early and maintains documentation, he or she may pass on the business to someone he or she trusts to run and keep the company thriving into the future.
The Equal Succession
When the business owner has more than one child, he or she may want to leave an equal share to each. However, he or she may need to consider which if any of them has the ability and capacity to ensure the success of the business once the estate owner is no longer alive. During his or her lifetime, in the end, he or she could provide assistance and advice, but once he or she is gone, the children must proceed without this support. Dividing the company is also not usually possible. However, the business owner may provide a job within the business for each child to secure financial freedom.
Many business owners will wait to train the next person to run the company until he or she feels it is the right time. The owner may place this person in the running of the company without any training on how to ensure success or to keep the company alive. The delay in training the person could cost the new owner everything. Even when the new owner has been part of the business for years, he or she may not know how to run it. The paperwork, contacts, suppliers and clients require certain processes and handling. Other matters such as how to market and advertise are sometimes over what the current manager is able to do or progress.
Not Planning for an Incident
When the business owner does not plan on problems to arise, these issues could sink the possibility of any succession. The death of a manager that was to receive the company before the owner dies may alter plans drastically. The loss of income due to a new competitor may cost the company before succession occurs. A medical condition that prevents the owner from passing on his or her business with a sound mind is another serious complication. The planning for numerous types of incidents is crucial. There are contingency plans the owner may make in case of something happening.
Not Hiring a Lawyer
When the owner wants to pass his or her business on to another person, he or she may need the legal services of a lawyer to ensure it occurs through valid processes. He or she may need specific paperwork, a trust or even another professional to help out such as an accountant or tax consultant. The mistake of not hiring a lawyer could cripple any possibility of passing on a company to another party.
The Lawyer in Business Succession
An estate planning lawyer or business lawyer may provide the necessary knowledge in passing on the business to another party. Depending on the circumstances, the lawyer may need to consult with the current lawyer on what he or she wants to accomplish and how to proceed.