It’s a New Year and I am sure you are excited to move forward with plans and goals you have for the future of your start-up (I know I have a lot of goals for this year too!). However, you should already understand that a start-up is not simply coming up with an awesome product or service and you start selling. To take an idea, nurture it, and grow into a business takes planning and coordination with others. Therefore, now is a good time as any to discuss Succession Planning and get you thinking of your business without you.
What is Succession Planning?
Wait, what? Yes, I know it seems curious that I stated you should start planning for your business, and then I said you should plan your business with you. What I am trying to get at is Succession Planning, which is used to describe the series of events and agreements that lead a person to exit a business and transfer their interests. For those of you with families and partners in your endeavor you realize the stress of trying to keep it altogether. Have you had that long discussion with your spouse that you may not be receiving income for a while as the business grows? Have you discussed who is supposed to do what in the company? Those conversations you have probably had, but let’s say your business grows and does well, but disaster strikes and you are dead or incapacitated or you are at a point where you no longer want to remain apart of the business. Let’s say your start-up is something you want to give your kids to manage. When then?
Any serious start-up is going to have contingency plans and much of this worked out in advanced. Why? Many times investors often require it, they want to know how the business will survive without you or is there minimal disruption to the company if a founder leaves. For your partners, they want to know that your interest is not left hanging out there in the event you die or are incapacitated. Finally, your family should get something out of this project, especially if you have committed long hours and payless periods to grow a company.
Helping Your Co-Owners and Family
Good Succession Planning is all about minimizing the disruptions to business should something happen to you, whether it be death or leaving. In particular, it is most helpful to businesses that have several founders and for owners who have families. You should consider restricting transfers of stock (or interests), carrying life insurance policies on the co-owners, and creating a buy-sell agreement. Finally, for those of you have families who have sacrificed much to support your in your dream business consider doing estate planning in conjunction with your Succession Planning.
When I discussed Succession Planning last month I invited my good friend and 2011 Leadership Institute fellow, Scott C. Suzuki, a Honolulu elder care and estate planner to talk about various estate and tax issues, which are musts for fledgling businesses and their owners. Many times people try to divorce their personal lives from business, which is true to some extent. In other cases, the reality is that you business life does bleed into your personal life and nowhere is that readily apparent when it comes to income and estate taxes. So before death and taxes wreak havoc on your business and family, consider consulting experts in the matter. As a bonus to all of you who follow alohastartups.com so vigilantly, check back for Part 2, which will discuss buy-sell agreements.
I would like to take this time for all you entrepreneurs or people ready to take the plunge to have a prosperous year of the Dragon.
[author] [author_image timthumb=’on’]http://www.alohastartups.com/wp-content/uploads/2011/09/RyanKHew.png[/author_image] [author_info]I am a practicing attorney in Honolulu, HI helping small businesses with their transactional and compliance needs.
Contact Me Today: Web| 808.944.8400 @RKHewEsq Ryan K. Hew, Attorney At Law[/author_info] [/author]
*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.