Some business owners may fail to include a thriving enterprise in their estate plans. Without a successor, a business may fall into the hands of an individual who may not have the skills or desire to manage it.
It could take several years to find and train a successor capable of taking over a company. As noted by Kiplinger’s Small Business, waiting until an owner dies or becomes incapacitated may have a negative effect on a company’s finances, customers and vendors.
Failing to plan for a successor may cause severe harm to a business
Without an estate plan that addresses business continuity, an enterprise run by a sole owner may end up transferring to the surviving spouse. Unless the surviving spouse has experience in managing a company’s affairs, vendors and financial institutions may choose to end their relationships.
Key employees may become upset with a new boss or feel as though they did not have an opportunity to buy the company from its owner. Training an inexperienced spouse or an heir may also create a hostile environment. Dissatisfied workers may provide lackluster service, which can cause clients to find and patronize another business.
Preparing to sell a business that an heir may not want to manage
When a business owner realizes that a surviving spouse or an heir may prefer to not manage a company, he or she may consider selling it. As noted by WealthManagement.com, if an existing employee has the finances to take over, an owner may benefit by providing an interim training period.
Business owners may wish to consider how an enterprise might affect a surviving spouse and heirs. An owner may decide to finance a sale to an employee successor, which may also help reduce the taxes incurred by the estate.