Planning for Business Owners and Entrepreneurs

Most people think about senior citizens and people with an illness when considering estate planning. Estate planning is important for business owners too – yet one-third of business owners have no succession plan in place. While we all like to think we’ll be around forever, the fact is you will exit your business at some point, whether you retire or pass away. It is important to incorporate your business succession plan into your estate plan. Below are some important considerations to keep in mind if you are a business owner:

Estate Planning

At a minimum, everyone (whether they own a business or not) needs a will, financial power of attorney, and advance medical directive. Business owners may need additional documents, including a trust and corporate documents to protect their business interests after their death. For example, if you have a buy-sell agreement to take effect at the time of your death or incapacity, this document could be incorporated into your estate plan. This type of agreement makes it easier for the business to be transferred to its new owners and managers when the time comes. Everyone’s family, financial, and businesses situation is different, so it is important to consult with an estate planning attorney about which type of plan is right for you.

Business Succession Planning

According to a recent survey by Edward Jones, 88% of business owners believe their business will grow in the next ten years. Research has shown that proactive succession planning can increase company valuations and investor returns by 20 percent to 25 percent. Although you may have a solid plan in place for after your death, it is important to keep in mind other potential pitfalls that may happen down the road. These are sometimes called the “Five Ds”: Death, disability, divorce, distress, and disagreement. It is important to make sure that you have a business succession plan to address the issue if one of the “Five Ds” happens to you.

Retirement Planning

Retirement planning often takes a back burner for entrepreneurs who are focused on building their business and ensure it is successful. In fact, one-third of entrepreneurs have no retirement savings. Many business owners plan to sell their business to help fund their retirement – a process that can take years. Having a plan in place now will make it easier to retire on your own timeline and make sure that you and your family can live comfortably as you age.

Insurance, Tax, & Financial Planning

Although meeting with an estate planning attorney is important, business owners should also have a financial advisor and accountant on their team to help them navigate issues surrounding business succession planning. It is also important to consider insurance. Most people focus on life insurance, which can provide co-owners or family members with an income and asset source upon your death and can even be used to fund buy-sell agreements. It is also important to consider disability insurance, which can help keep the business afloat in the event that you become ill or disabled.

It can be tempting for business owners to focus only on growing their business in the present time. However, if you want to ensure that your business is successful after your retirement, disability, or death, it is important to have a plan in place to protect your business.