Building a business is often an all-consuming quest. Your entrepreneurial clients have spent years, maybe decades, fighting past obstacles to make their dreams a reality. It’s easy for founders to find themselves so absorbed that they forget about the “outside” world. This short sightedness can harm their relationships and health, in the worst cases. It has other consequences, too. Founders often neglect to deal with estate planning. And this inaction can spoil the fruit of decades of hard work—ricocheting to affect their loved ones, their employees and even their customers.
So what should your founder clients do?
1) Craft an Exit Strategy.
Every founder, at some point, needs to walk away. This exit can happen randomly or in an organized fashion. Guess which method is less stressful?
A succession plan is a formal written exit strategy for your client’s retirement, death or injury. A well-crafted plan ensures that your client can pass her business on to the successor of her choice (e.g. a child, a spouse, a trusted employee, etc.) and seamlessly passes the torch.
A related tool is the buy-sell agreement, which allows for the redistribution of an owner’s interest in the event of his death or incapacity. Through buy-sell agreements, your client can set parameters on when and how to monetize the value of the business and who may purchase his business interest.
2) Establish a Personal Retirement Strategy.
Is the owner building a “backup” base of assets (in a 401(k), SEP, SIMPLE, or pension plan, for instance) to supplement expected sales proceeds of the business? Does the owner have the proper estate planning documents (a will, trust, power of attorney, and an advanced health care directive) in place and are they up to date in order to protect them, their family, and their assets?
3) Incorporate Their Business into the Estate Planning.
If it is the owner’s intent to pass the business to his or her children, he or she can consider making annual gifts of stock into a trust for the children so that the children are slowly acquiring an interest in the business, while reducing the value of the owner’s estate. Additionally, the owner can name a business partner or family member as the beneficiary of an insurance policy with the intent that the proceeds be used to limit business disruptions and keep the company moving forward.
Do Your Entrepreneurial Clients Have All Their Bases Covered?
If not, we’re always here to help! There are many options available to your business owner clients and we are here to walk you and them through the possible solutions. We’d love to learn more about what your business owner clients need, so you can eliminate a big source of uncertainty for them. Please call our team today to schedule a consultation.