What is business planning in an estate planning context?
Like everyone else, small business owners need to plan for what happens to their personal assets and personal affairs if they become incapacitated or die. In addition, these small business owners need to carefully plan for what happens to their business in these situations. To put it simply, in the estate planning context, business planning defines how your small business will operate in the event of your incapacitation or death and makes sure that the right people have authority to operate the business if the need arises. For businesses that consist of other employees in addition to the owner, this type of planning is critically important to ensure that the business can continue to operate and therefore retain its value in the owner's absence.
What does business planning do?
Business planning, in the estate planning context, provides a plan to address how the business is to be managed and operated upon the owner's death or incapacity, and grants others the legal authority to carry out operations and implement the plan. If you are incapacitated or out of work due to an accident, illness, or dementia, your business planning would authorize someone else to carry out day-to-day operations, such as running payroll, signing checks and contracts, and making management decisions for the company.
Why do I need business planning for my business?
To put it simply, you don't know what's going to happen and when. All business owners face a risk that they may become incapacitated or die. So, having a plan in place to ensure the business continues to operate in your absence makes a lot of sense. Also consider the fact that your business may be a substantial asset for you and your family. It may be your family's only source of income, or perhaps it is a large component of your net worth. Furthermore, you may have employees whose livelihoods depend on your business. As the owner, it is essential to have a plan in place to protect those depending on you, as well as yourself.
It should be noted that business planning not only protects the company in the event of your incapacitation or death, but in your absence for any reason. If you need to leave town for an extended period, perhaps to care for a relative, or if you simply want to enjoy a long vacation or sabbatical, having plans in place authorizing the right people to manage and operate the business can give you peace of mind knowing your company will continue running smoothly until you return.
What happens if I don't do any planning for my business?
If you do not have plans in place, and you were to become incapacitated or die, there may be serious repercussions for your business and family. If you are not there to manage payroll, sign checks, enter into contracts, and make decisions, and you have not given anyone else the authority to perform these duties, business could grind to a halt. Employees won't receive pay, vendors will not be compensated, and those dependent on the company—including your family—could be in financial jeopardy. Your family and colleagues will then have to either go through the process of appointing a conservator if you are incapacitated, or, if you die, wait for the court to grant powers to your Executor, both of which can take time and incur expensive legal fees. All of this can be avoided with proper business planning.