Securing Your Legacy: Essential Planning for Small Business Owners
- Legacy planning is crucial to a company’s long-term success and your financial future
- Documenting your values, a business succession strategy, and regular check-ups helps mitigate risks
- A well-crafted legacy plan weaves together your business life and personal financial goals
Small business owners I work with are often nose-to-the-grindstone and focused on daily operations. Long-term growth is the name of the game. What’s sometimes overlooked, however, is the end strategy. Sure, you want to grow sales and profits year by year, but eventually you’ll find that slowing down becomes a bigger priority. Entrepreneurs who have been at it for decades understand that well. While there is an inner sense of meaning when you’re managing a team, delivering value to customers, and building your business, you should always be cognizant of life after running the show and how the business will carry on without you.
Legacy planning, as we call it in the world of financial advice, is a critical aspect of your long-term plan. It’s not as cut and dry as, say, asset allocation percentages or the dollars and cents of a budget, but it is just as valuable. This part of financial planning ensures that the business you started, built, and maintained will continue to benefit your loved ones, employees, and community long after you’ve hung up your professional cleats.
What is Legacy Planning?
You probably hear a decent bit about estate planning, and for good reason. Estate planning is focused on protecting your assets upon your passing and how they will be distributed after death. Legacy planning is a bit different. It’s a broader approach that includes a detailed outline of how your business will be transitioned. There are, of course, key legal considerations, but the point is to carry out your values and intentions. Many of my clients want to ensure generational wealth for their families while preserving the business as a going concern.
If you run a successful enterprise and have not given much thought to how the business will operate once you’ve left the helm, now’s the time to act. Make it a goal and mark it on your calendar. You can even get started on your own by identifying individuals best fit to take over the company, jotting down how you would like it to be operated, and spotting risks to its financial health leading up to and after the transition of ownership.
The Importance of Legacy Planning for Small Business Owners
Type-A-personality business owners want firm answers to financial questions, but I often come back with soft questions for them that surround the “why” of wealth. Legacy planning centers on that, and it accomplishes several crucial aspects that mesh risk management and estate planning:
- Business Continuity
Too often, business owners fail to plan beyond the next few years. Without a clear blueprint of how the firm will survive in your absence, financial peril could be on the horizon. Legacy planning ensures that the business operates smoothly in the event you choose to step aside, or if an unfortunate event occurs that prevents you from carrying out your duties as owner. The benefit here is that a well-constructed plan can assure you, your staff, and your customers that there will be stability no matter what the future holds.
- Securing Your Family’s Financial Future
Your biggest asset is likely your business. That reality demands that you treat it with care and protection. A major piece of legacy planning is an exit strategy, and we’ve detailed that before on our blog. Take time to consider the options and the advantages and disadvantages in your case.
- Living Out Your Values and Mission
Legacy planning focuses on preventing the bad stuff from happening, but it can also be a rewarding exercise of envisioning how you’ll own your future. Through a series of meetings and conversations, we will sit down to identify your values and goals. We will then craft a legacy plan that aligns with your mission. In many instances, other family members are included, and lines of communication are open. Other business partners may be brought in too.
- Avoiding Drama
Clear communication today among stakeholders also reduces the chance of future disputes among family members, employees, or even important customers. Discussions around legacy planning may feel awkward at first, but it is well worth it to avoid legal battles and strained relationships down the road.
- Maximizing Tax Efficiency
Among all of the upsides to legacy planning, saving money on taxes can be a real motivator for all of you who are so capitalist-inclined. There might be an optimal exit plan that can keep Uncle Sam from digging too far into your pocket…which is, of course, important to preserving wealth for you in retirement and your heirs thereafter.
Legacy Planning: Steps for Small Business Owners
So how do we go about this? And what can you do today? Let’s run through the action items to get you on the path toward preserving a legacy for you and your business.
- Define Your Goals
Begin by considering what you want the business to look like. Would you prefer that a family member run the show someday? Or do you have a trusted business partner ready to take charge? Beyond the business, if there is a financial windfall once you exit, are there specific charitable causes you want to support? Perhaps you have a Round 2 in mind in terms of financial ventures that require planning.
- Identify a Successor
The future leader of the company must know the plan, whether it be a family member, long-time employee, or business partner. They must be competent, but they should also recognize that your priorities matter greatly. Still, some entrepreneurs are just fine with the new owner making the business their own. Whatever your preference, your successor must know the ins and outs of the company and its industry. A phased transition might be an effective way to preserve your legacy too.
- Develop a Succession Plan
Outline a timeline for the transition, define roles and responsibilities, ensure there are time and resources for ample training and development, and prepare for a range of possible unexpected events, such as a sudden death or the departure of a key employee. Working with us and attorneys, the success plan document covers all these bases.
- Estate Planning and Business Structure
With our team, you can structure or restructure your firm in a way that fits with your long-term goals. It might involve creating a trust to manage future business assets or creating a new corporate entity to foster a smooth transfer of ownership. At the personal level, gifting strategies and life insurance are often useful tools to provide liquidity and tax optimization. Establishing a charitable trust can be among the most effective ways to leave a legacy.
- Ongoing Management and Communication
While many money matters are private, your legacy plan must be out in the open, at least to a select number of folks – it’s only effective if others are aware of and on board with it. Be sure to communicate your intentions with your family and those who should be in the know at your business. What’s more, a legacy plan is not static; it requires maintenance and updating as circumstances and wishes shift. Life happens, and you should revisit your plan to account for that reality. Tax laws change, too.
The Bottom Line
Legacy planning is imperative for small business owners. It’s not just about protecting your wealth, but also about ensuring that the values, mission, and entrepreneurial success you have earned live on. Don’t be intimidated by “legacy planning,” rather, take small steps today to plan for the future.
