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Tag: Exit planning

Tips for Inheriting a Business: Navigating the Emotional and Strategic Challenges

Inheriting a business can stir a complex mix of emotions. Amidst the grief of losing someone close, there’s often a sense of overwhelm, coupled with the realization of a significant opportunity. It’s a pivotal moment, demanding sensitive handling and strategic planning to navigate the future of the business you now find yourself at the helm of.

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Understanding the last owner’s will

The last owner’s will is more than a document; it’s a roadmap that illuminates your legal standing and outlines the intended future of the business. Understanding its nuances is crucial for anyone stepping into the role of business inheritor.

Reviewing the will with a legal professional

This is a vital first step. Engage with a lawyer who specializes in estate and business law. They can help interpret complex legal jargon and explain the implications of the will’s content. Ensure you understand every clause, especially those directly affecting the business. Questions like, “What percentage of the business do I own?” or “Are there any conditions attached to my inheritance?” need clear answers.

Additionally, if the previous owner dies without a will, that will also require significant attention from a legal professional. While the previous business owner may not have had a will, if they had a business succession plan, that’s a completely different legal document.

Understanding specific directives

Wills can sometimes contain specific instructions regarding the business operation, such as succession plans, allocated shares to other stakeholders or even instructions on selling or dissolving the business. Analyze these directives closely. If the deceased had a vision for the business’s future or specific wishes about its direction, these can guide your decision-making.

By thoroughly understanding the last owner’s will, you arm yourself with the knowledge required to make informed, strategic decisions about your new venture. This understanding sets the foundation for the many choices and challenges you will navigate as you take the helm of your inherited business.

READ: Study Shows Most Colorado Business Owners Are Not Ready to Sell Their Businesses

Assessing your situation

Assessing your situation before inheriting a business is a multifaceted task, demanding a thorough, honest reflection across various dimensions:

Emotional readiness

Inheriting a business in the wake of a family member’s or close associate’s passing can be emotionally taxing. Acknowledge your feelings of grief, loss or even guilt that may accompany this new responsibility. Consider if you’re emotionally ready to handle the business’s daily demands, decision-making and the legacy expectations attached.

It’s also essential to think about your passion for the business. Are you excited, reluctant or indifferent about this venture? Your emotional investment can significantly influence both your well-being and the business’s success.

Financial stability

Take a deep dive into the business’s finances. This isn’t just about whether the business is profitable. Analyze cash flow statements, balance sheets and income statements. Look at outstanding debts, ongoing expenses, creditor obligations and customer receivables. Evaluate the efficiency of current financial practices — are there areas where costs can be cut without sacrificing quality? Understanding the financial nuances helps in making informed strategic decisions and preparing for potential investments or necessary cutbacks.

READ: How Colorado Businesses Can Benefit from Nontraditional Funding and Private Equity Firms

Vision alignment

Consider how your personal vision aligns with the business. Are you on board with the direction in which the business is heading, or do you see a different path forward? Your vision for the future of the business will significantly influence strategic decisions, employee morale and ultimately, the success of the enterprise.

Risk assessment

Every business comes with its set of risks. Conduct a risk assessment to identify areas of vulnerability — be it financial, operational, legal or market-related. This can help in crafting strategies to mitigate these risks, preparing for unforeseen circumstances and ensuring business continuity.

By thoroughly assessing these areas, you’re not just evaluating the present state of the business; you’re preparing yourself mentally and strategically for the path ahead. This deep understanding of both the business and your relationship to it is crucial for long-term success and personal fulfillment.

Legal and financial considerations

You’ll be navigating a sea of legal changes including ownership transfers and understanding tax implications. A thorough financial audit is indispensable. Know the business’s assets, liabilities, cash flow and other essential financial dimensions. This information is vital for informed decision-making.

By delving deep into these legal and financial considerations, you lay a sturdy foundation for the business’s longevity and success. This preparation helps to navigate the complex landscape of business ownership, ensuring compliance, financial stability and strategic foresight.

Embracing leadership and business culture

Stepping into a leadership role requires more than just authority; it demands respect and trust. This transition often means understanding the existing business culture and considering how to evolve it. Balancing the legacy left behind with innovative approaches is key to modern business success.

The bottom line

Inheriting a business is an emotional journey, laden with responsibilities and opportunities. It calls for resilience, an openness to learning and sometimes, seeking external help. Remember, you’re not just taking over a business; you’re continuing a legacy while crafting your personal and business vision.

 

Jill BrooksJill Brooks is a freelance writer from the East Coast who enjoys discussing how technology impacts the future of work. In her free time, you can find her in the mountains, or on a hunt for the world’s best mac-and-cheese recipe.

What Is the Difference Between Business Succession Planning and Estate Planning?

Business owners have a lot on their shoulders when considering the future of their businesses. Unfortunately, succession planning can feel so daunting that many successful business owners put it off longer than they should. As a result, they fail to take action or succumb to misconceptions about what should be done.

READ — Exit Planning: New Study Shows Most Colorado Business Owners Are Not Ready to Sell Their Businesses

One of the biggest misconceptions business owners face is that estate planning and business succession planning are the same. Of course, the two are different, but both are important.

Understanding Business Succession Planning

Business succession planning relates to the business itself. The strategy enables the company to continue functioning successfully after the current owners cannot run it. This strategy focuses on providing clear direction for the business itself. It creates business continuity.

Current owners can ensure ongoing faith in business leadership through proper business succession planning. They can train and prepare someone highly qualified and familiar with the business to become the new leader.

This helps prevent power struggles between middle management leaders vying for promotions and helps preserve employee faith in the company. However, these struggles can have a tangible impact on the value of a business and are a risk when a business undergoes a significant change, like the death of the current owner.

A key and often difficult conversation for many business owners—especially the owners of family businesses—is about whether the next generation is equipped to run the business and whether they’re even interested in running it.

Often, a buy-sell agreement becomes a vital component of a business succession plan. The business is sold to a new owner upon a triggering event, such as the retirement or death of the current owner.

Understanding Estate Planning When a Family Business Is Involved

Estate planning is more than just business planning. Estate planning relates to transferring all assets (business and other assets) during the business owner’s lifetime, upon incapacity, or after death.

It relates to ownership interests in a business and what is to be done with other sources of wealth such as retirement accounts, investments, interests in property, and life insurance.

Conversations about estate planning can be deeply personal, especially when a family business stands to be inherited. Some adults and children may find themselves involved with the business, while some may not. The business owner often needs to ensure that everyone inherits fairly, whether their share is a business interest or another asset.

Tax consequences are also complex and nuanced for estate plans involving businesses. Failure to plan for the payment of estate taxes can be highly detrimental to the business. It’s not uncommon for a business to be sold to pay taxes.

READ — Smart Estate Planning to Reduce Estate Tax

The Overlap Between Business Succession Planning and Estate Planning

There can be significant overlap between a person’s estate and business, especially when a family business is passed down through generations.

Business owners need to consider both a succession plan for the business and an estate plan.

Otherwise, families can become enmeshed in conflict. Emotions can run high, and so can the cost of subsequent litigation. Proper business succession planning and estate planning can preserve harmony while ensuring that a business can continue its success far into the future.

 

For more information about business and estate planning in Colorado, contact Hackstaff Snow Atkinson & Griess, LLC, at 303-534-4317 or visit our website.

Douglas R GriessJohn T SnowDoug Griess and John Snow of Hackstaff Snow Atkinson & Griess, LLC, are top Denver business attorneys and litigators with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, Doug Griess and John Snow offer an in-depth understanding and knowledge of general real estate and litigation rules and regulations and are a trusted resource for business owners throughout Colorado.

Exit Planning: New Study Shows Most Colorado Business Owners Are Not Ready to Sell Their Businesses

The Exit Planning Institute (EPI) recently conducted research to better understand the exit readiness of Colorado business owners and to see how prepared Colorado business owners are for an eventual sale. What we found was interesting and insightful, and underscores both the uniqueness of this region and the growing and evolving discipline of exit planning.

The Colorado State of Owner Readiness Report features survey results from over 400 business owners in Colorado. Survey results showed 95% of Colorado owners felt that having a transition strategy is important for both their future and the future of their business. Yet, 48% of owners stated they had no written personal financial plan and 65% indicated they had no formal or written transition plans.

Despite understanding that having a succession plan is critical to both business success and their own future, the survey results highlighted many reasons business owners had not started exit planning. The most common reason was owners were too busy growing their business to focus on exit planning. In addition, nearly 10% of owners did not have a transition strategy in place because they did not understand how to start the process. In fact, the survey found that 68% of business owners in Colorado are unfamiliar with their exit options.

READ — Creating a Small Business that Thrives

The impact of ill-prepared owners in a transition can be both economic and social. Applying these survey results across all Colorado businesses, we can project that more than half of all privately held companies will look to transition within the next 5 years, equating to approximately $1.7 billion in value. Without a proper exit plan, some of these business owners will not be able to find a buyer for their business, and of the ones that do, many may not maximize the outcome or end up regretting their exit from their business.

The first step to an effective exit strategy begins with understanding the value of your company. Nearly 71% of those surveyed indicated they had not completed a formal valuation or had no clear understanding of their company’s value at all. In addition to understanding value, exit planning integrates business planning with personal planning so business owners can prepare for a fulfilling and significant exit from their business.

If Colorado business owners want to rapidly grow the value of their company while creating significant wealth for themselves and their families, they must get educated on the exit process, create a formal transition plan, and concentrate on understanding and accelerating the value of their business. Our findings show that Colorado business owners are already aware of the importance of exit planning, but with the help of qualified professionals, these business owners can ensure their transition plan sets both their business and their future up for success. The good news is Colorado is home to numerous exit planning professionals. These professionals include Certified Exit Planning Advisors (CEPAs) in the Rocky Mountain Chapter of the Exit Planning Institute.

The full results of the Colorado survey can be found in The 2022 Colorado State of Owner Readiness Report.

 

 

2019 Headshot1 Snider Scott 500x532Scott Snider is the president of Exit Planning Institute and a nationally recognized industry leader, growth specialist, and lifetime entrepreneur.