Major corporations have succession plans, but small business owners — especially sole proprietors — tend to overlook these essential continuity tools. Nearly any business in Iowa, regardless of the size, could benefit from its leadership considering how to enact a smooth transition of authority should a loss occur at the highest levels.
For smaller businesses, continuity strategy development often overlaps with estate planning. Most businesses are privately owned, and many proprietors own the assets of their small companies outright. Therefore, a leadership transition often accompanies a change in ownership.
One thing to consider is the legal risk of sole proprietorship. According to FindLaw, for example, a spouse of a sole proprietor could be liable for debts a small business owes if the owner passes. While a businessperson would probably know how to manage debts, deal with creditors and maintain reliable cash flow, the default inheritor of the company’s assets might not have those skills. Luckily, there are various strategies to overcome this challenge.
The small business section of Chron highlights some of the challenges of leaving a small business to someone, as well as some possible solutions. The takeaway is that it is often far more damaging to a business to forgo planning for various reasons, including:
- Lack of specific terms regarding intellectual property could diminish its value
- High inheritance taxes on assets could threaten operations
- Sole proprietorships dissolve upon their owner’s death, often forcing inheritors to reform the business
Among the possible solutions suggested in the Chron article is that the owner incorporate the business. Forming trusts might also be a viable option, in certain cases. At the very least, it is often wise to draw up a section of a will to guide the distribution of company property.