In today's Freedom Friday blog and email newsletter, I want to discuss a question that is rarely asked, but should be, and that is why your small business needs a succession plan. No one wants to plan for the event when they either pass away, become incapacitated, or for some reason are no longer able to run their small business. This is why it is important for your small business to have a succession plan. So, in today's Freedom Friday blog and email newsletter, I'm answering the question, “Why does your small business need a succession plan?”
Having a business succession plan is important in planning for the future of your small business. Here are three (3) key components of a solid business succession plan:
1. Buy-Sell Provisions in Your Operating Agreement or Bylaws
The first key component of a solid business succession plan is buy-sell provisions in your LLC's operating agreement or your corporation's bylaws. This is especially important if there is more than one owner of your small business, but it is also essential if you are the sole owner of your small business. So, what is a buy-sell provision? A buy-sell provision will document what will happen to your LLC or corporation if something happens to you, or if something happens to one of your co-owners. It is very important for you to document what happens in the event of your incapacity or your death. If you're the sole owner of your small business, then it is also wise to have a provision in your LLC's operating agreement as to what happens to your small business if you are incapacitated or pass away. There are different options, but it is best to consult with an attorney to review those options with you in preparing your operating agreement or bylaws.
2. Essential Employee Policies
The second key component of a solid business succession plan is essential employee policies as part of a policies and procedures manual. If your small business doesn't have a policies and procedures manual, then now is a good time to create one, and perhaps ask an attorney to assist you in creating it. Your policies and procedures manual should have a “key man” policy, i.e. what happens to your small business if something happens to you as the owner; and then if you have employees, you need to have an “essential employee” policy, which is what happens in your small business if something happens to one of your “essential employees.” Again, there are different options, but its best to consult with an attorney to review those options with you in preparing your policies and procedures manual.
3. Key Man Insurance Policy
The third component of a solid business succession plan is having a key man insurance policy for you as the owner of your small business, and also possibly purchasing coverage for key employees, such as managers and supervisors. This is an optional step and depending on the scope and size of your small business, you may or may not need or want to purchase such insurance. This is a business decision which you should make with the assistance of an insurance professional and/or your attorney. At the very least this is something you should consider to see if it makes business sense for you to purchase this type of insurance.
If you are interested in starting a small business anywhere in Oklahoma, or you are interested in taking your small business to the next level, please contact me at [email protected] to schedule a FREE strategy session.
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