Building an Enduring Business: What's Your Endgame? Business Owner Series Part I of IV
The entrepreneurial life is profoundly demanding. In theory, the idea of “being your own boss” sounds empowering. In practice, running a business tests everything you are made of. In fact, many of us probably even worked yesterday! You must show grit, embody patience, provide value, take massive action, embrace the reality of uncertainty, and never lie to yourself about what is really happening.
The founder’s journey is so consuming, however, that it is easy to forget the world outside your company’s bubble. In the worst case, entrepreneurial workaholism can negatively impact relationships and health. All the daily firefighting (the vendor who is late, the client demanding extra attention, the aging A/R, etc.) can cloud your vision of the future. Failing to deal with the estate planning piece, for instance, can spoil the fruit of decades of hard work—ricocheting to affect your loved ones, employees and even customers.
So what do you need to do? Roughly speaking, just three things. Here they are:
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 retirement, death, or injury. A well-crafted plan ensures that you can pass your business on to the successor of your choice (e.g. a child, a spouse, a trusted employee, etc.) and seamlessly pass the torch.
A related tool is the buy-sell agreement, which allows for the redistribution of an owner’s interest in the event of death or incapacity. Through buy-sell agreements, you can set parameters on when and how to monetize the value of the business and who may purchase your business interest.
2) Establish a Personal Retirement Strategy.
Are you 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? Also, do you 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 you, your family, and your assets?
3) Incorporate Your Business into the Estate Planning.
If it is your intent to pass the business onto your children, you can consider making annual gifts of stock into a trust for your children so that you are slowly giving them an interest in the company, while reducing the value of your estate. Additionally, you 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 You Have All Your Bases Covered?
If not, we are always here to help! There are many options available to you and we are here to walk you through the solution that is best for you. We would love to learn more about your needs and elimina
te a big source of uncertainty for you. Please call us at 301.892.2713, today to schedule a consultation.
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