Every entrepreneur remembers the day they opened their business.
They remember signing the lease, hiring their first employee, landing their first customer and taking the risks that turned an idea into a livelihood. Years later, many of those businesses have become far more than a source of income. They support families, employ members of the community and contribute to New Jersey’s economy.
Yet one of the most important questions business owners can ask often goes unanswered: What happens to the business if something happens to you?
It’s an uncomfortable conversation, which is precisely why so many people avoid it. Business owners are busy managing employees, serving customers, growing revenue, and putting out the fires that came across their desk today. How can they worry about tomorrow? Planning for the unexpected usually gets pushed to the bottom of the to-do list, when it should be a priority.
Life happens when we are too busy building a business and what happens is sometimes not in accordance with the plan.
An unexpected illness, accident, or death can leave a company without clear leadership at the very moment it needs it most. Employees are left to wonder “who is in charge?” Customers start looking to other providers. Vendors become concerned with how the business will pay their open invoices. Financial institutions may re-evaluate existing lending relationships. Family members, already dealing with personal loss, may suddenly find themselves responsible for a business they know little about.
For sole business owners, the consequences can be especially severe. Without a succession plan, the business itself may not survive. The relationships, expertise, and leadership that made the company successful often disappear with the owner, causing the value of the business to decline rapidly or disappear altogether.
That’s a tragedy not only for the owner’s family but also for employees whose jobs depend on the business and for communities that benefit from locally owned companies.
Perhaps the biggest misconception is that a will alone solves the problem.
A will determines who inherits assets, but it does not solve the issues of who will manage the business, who has authority to make financial decisions, or how ownership will transition.
Effective succession planning requires business planning and estate planning to work together. This process involves evaluating and potentially updating corporate governance documents, shareholder or operating agreements, and buy-sell arrangements among owners. A proper business success plan will identify future leadership of the business, while coordinating with an overall estate plan.
Importantly, succession planning isn’t just about death. A temporary or permanent disability can create many of the same challenges. Planning for incapacity ensures someone has the legal authority to keep the business operating while protecting both the owner’s interests and those of employees, customers, and business partners.
Business owners devote tremendous energy to building enterprise value. Some of that energy should be focused on developing a strong succession plan, which helps ensure that value created by hard work and dedication does not disappear simply because the unexpected occurs. Instead, it creates a path for continuity, protects the people who depend on the business, and preserves the legacy that the owner worked so hard to build.
Planning for the future isn’t pessimistic. It’s one of the most important investments a business owner can make, not only for the company, but for everyone who depends on its success.
If you weren’t able to walk into your office tomorrow, what would happen to your business?
If the answer is not clear, or if you have never had such a conversation, there is no better time to start. Every business owner’s goals are different, which is why succession planning should be tailored to both the business and the family behind it.
The question isn’t whether you’ll eventually leave your business. It’s whether you’ll have a plan in place when you do.
Mariel Giletto is Flaster Greenberg’s Business and M&A Practice Group Lead. Courtney Dolaway is the firm’s Trusts & Estates Practice Group Lead. Jennifer Apell is counsel in the Trusts & Estates Practice Group. Flaster Greenberg PC is a full-service, commercial business law firm serving clients across a range of industries in the public, private, government and nonprofit sectors.
