An unexpected accident or medical emergency could result in a business losing an owner or a partner. If your organization relies on an individual’s skills, its business relationships may deteriorate after an illness or a death.
As noted by Kiplinger’s Personal Finance, a continuity plan may reduce the risk of loss from a sudden absence. Establishing a successor allows your business to continue without interruption.
Continuity plan basics for solo business owners
If you own a business as a sole proprietorship, illness or death may result in a loss of income for your survivors. Adding your enterprise to a will or trust may not help guarantee revenue; your spouse or heirs may not possess the skills to replace you. If your heirs lack the ability or desire to manage your business, you may need to find and train a successor.
Your estate planning documents may include instructions for the management of your enterprise. You may include your wishes for a chosen successor to handle customers and employees. Your instructions could also outline when to sell your business and how to divide the proceeds.
Agreements for partnerships or multi-owner businesses
Partnerships or limited liability companies may reduce the risk of a business interruption with buy-sell agreements. A contract’s language may describe certain events, such as a catastrophic injury or an illness, that trigger the contract’s terms.
With a buy-sell agreement, when a partner or member experiences a triggering event, the remaining parties may buy out his or her shares. In some cases, the business could choose to buy the shares from a deceased owner’s estate.
Estate planning documents may include a range of business continuity plans. Whether you intend for your heirs to place a successor in charge, sell your business or protect a partnership interest, options exist to help achieve the desired outcome.