Business owners may consider including their commercial enterprises in their estate planning documents. A study conducted by the Exit Planning Institute found that 83% of businesses did not have written plans for an ownership transition.
Kiplinger’s Personal Finance notes that most business owners expect that an adult child or a family member will manage the company after they die. Only 30% of family-owned businesses, however, survive the second generation’s ownership. The other 70% often fail because of a lack of succession planning.
Succession planning could help a family business survive
Without creating an exit strategy, a family-owned business may not continue operating if its owner falls ill or dies. By preparing an effective estate plan, owners could find a capable successor to take over during an emergency. Suitable successors should fully understand their management responsibilities. Ideally, they will have already established relationships with the business’s customers or clients.
A family member may not possess the necessary skills to keep the business running. Owners could, however, look to their employees for a qualified successor. An individual may need hands-on training to learn how to manage the organization without its owner. A smooth transition may also include selling the business or a portion of it to its successor.
Business growth and longevity strategies may become part of an estate plan
Family enterprises expected to outlive their owners often require growth and estate plans that include the issue of business succession. Franchise owners, for example, may plan to grow their enterprises by acquiring multiple units. As noted by Franchising.com, future growth plans may require capital for acquisitions and business survival. Careful estate planning could include a strategy for heirs to both maintain a business income and help foster its growth and longevity.