Guest Post by Alicia Lawrence
Death is the one thing we can count on in this life. We often push the thought aside to avoid depression. But in the case of a solo entrepreneur, death is something we have to be prepared for if we want our business to live on. While some entrepreneurs are fine with the thought of having their business die with them, others value all the time, sweat and tears they’ve poured into their work and hope it will sustain their family even after they are gone.
This is a guide for those solo entrepreneurs who hope to pass down their business to a family member or friend. One caveat before we begin: every business is different and, while entrepreneurs love doing things themselves, it’s worth your investment to have a lawyer or financial planner look over your business continuation plan to make sure you didn’t leave anything out.
Creating a Master File
One of the most important parts of a Business Continuity Plan (BCP) is a master file that contains all the information someone would need to carry over the business. You should keep at least two copies of the file, a printed version in a safe and the other on a secure digital document on a hard drive or backup drive in safe location. Below is a basic list of the kind of information you should have in your master file:
- Usernames and passwords
- Key contacts and their involvement in the company (ex: financial advisor, web host contact etc)
- Business assets and their function
- Business bank account information
- Business insurance details
- Website files and backup locations
- Last 4 years of tax documents
- Recurring payments and cash flow (how much, who to send it to, and when)
- Daily duties (especially for first month after entrepreneur’s passing or disability)
- Trust and Estate Plan
- Other important documents
Go over your master file with your successor. Answer any questions or add to the file where they need more information. Include as much detail as you can in the file.
Training Your Successor
Even if your successor is a family member, it’s important to train them on the bare minimums to keep your business going and income flowing. Besides going through the master file, teach them how to maintain the most important aspects of the business. Don’t forget to show them where to find essential files on your computer.
You may choose to split the potential revenue of the company between family members. If this is the case, negotiate with your successor how much revenue they will receive and what percentage goes to other members. Record the revenue split in your will and trust.
Lastly, troubleshoot problems that might come up or have in the past. Even if you talk about all these areas, it’s important to document it in writing so your successor doesn’t forget what you talked about in the future.
At the very least you should make sure the details of your business, like who will be your successor, is recorded in your will. Without a will the state determines where your money and possessions go after you die. However, a trust (in addition to your will) would be beneficial to your family members and business successor in the event of your death.
There are a few differences between a will and a trust. A will still goes through probate, which means all your assets and cash will be put on hold till it goes through probate court. A trust helps your successor avoid probate for the items listed in the trust and can reduce taxes. A will is also a public record, while a trust is private.
Things to Consider
Outside of what’s mandatory for you to pass your business on to your successor, there are a few additional things to consider to make the transition as smooth as possible.
Perhaps you can’t think of anyone who would be able to take over your business successfully. In this case, consider selling a viable option. It’s best if you have a buyer lined up or a suggested company who could sell your business for you.
If your business’ income supports your family and you really couldn’t survive without it, consider getting life insurance to supplement that income when you’re gone. This is even a good idea if you do have a successor to take over the business. You can never be too secure when it comes to your business and family’s future.
Alicia is a content coordinator for WebpageFX (http://www.webpagefx.com) and blogs in her free time at MarCom Land (http://www.marcomland.com). On the side, she assists entrepreneurs in business strategy. She currently is the successor for a family business. Her articles have been published by Business2Community, Yahoo! Small Business, and PR Daily.