By Colin Smith | Contributor
The narrative of the individual who rises from hardship is deeply cherished in American culture. This theme is woven into the fabric of our society, as many of us are either immigrants or descendants of immigrants. Small enterprises remain a vital part of our economy, fueled by immigration and various historical changes. However, the onset of the 2019 Coronavirus has cast a shadow over big-box retailers, potentially ushering in a wave of small business growth as larger corporations contract.
Business proprietors often report that they have never exerted as much effort working for someone else as they do for themselves. Consequently, many family business owners become so engrossed in day-to-day management that they overlook creating an exit strategy. What occurs in the event of illness, a family crisis, or retirement? What if they pass away unexpectedly? Additionally, the dynamics may shift if a family member marries someone who disrupts the business harmony. While these scenarios are frequently brushed aside, the current pandemic serves as a stark reminder of how swiftly circumstances can change. Beyond the obvious challenges, such as litigation or bankruptcy, here are critical factors to consider when mapping out the future of your small business.
Who is authorized to run the business? In certain businesses, like medical practices, the operations hinge on one licensed professional. For instance, if a solo physician running a PLLC (Professional Limited Liability Company) experiences health issues, disability, or passes away, the practice may come to a standstill. Legally, a PLLC requires a licensed practitioner to function. Without an alternative physician, the business must cease operations. This rule applies equally to legal practitioners, tax advisors, and various skilled trades. Fortunately, proactive planning can help owners avert such shutdowns during emergencies.
Family conflicts. Many small businesses are family-run, and conflicts can arise, particularly if an owner unions with someone unapproved by the rest of the family. Tensions can spike if the family’s mediator is unavailable to reconcile disputes. Having an exit strategy in place is beneficial in these situations—whether voluntary or mandatory. Establishing buy-sell agreements is a strategic way to maintain both the business’s integrity and family unity.
Financial and operational access. Typically, smaller businesses rely heavily on the owner’s personal knowledge and experience. If something were to happen to the owner, operations cannot simply pause. Continuity is vital: payroll must still be processed, products and services need to be delivered, and daily activities must proceed. While much information has transitioned to digital and password-protected formats, crucial operational details should also be documented physically. If only one person has access to bank accounts and legal arrangements like power of attorney are not established, delays may occur as others seek court access, costing valuable time. Additionally, business partners may struggle to manage operations without clear insight into the unavailable member’s methods.
Preserving legacy. Building a business can take years to achieve, and as it matures and thrives, it commonly becomes synonymous with the owner’s identity and legacy. The owner has the option to sell, pass the business down to a relative, or transfer authority to a trusted associate. Without a clear succession plan, conflicting views can paralyze business operations. Moreover, unexpected transitions can lead to stagnation and eventual disintegration of the enterprise. Therefore, implementing a basic succession plan is essential for maintaining organizational stability and harmony.
Estate planning considerations. Ownership within a business can transfer after an owner’s passing. If an owner’s estate does not adequately address ongoing ownership matters, ambiguity may disrupt operations during the resolution process. Such uncertainty can cause essential staff or business partners to depart, which could jeopardize the business’s survival or lead to capital loss.
Building something that requires years, decades, or even a lifetime deserves an owner’s diligent attention. Succession planning is crucial for safeguarding any business and ensuring the well-being of its partners, employees, and owners.
Editor’s Note: Contact Colin Smith at colin@colinsmithlaw.com or at 972.773.9095. Visit www.ColinSmithLaw.com.
ABOUT COLIN SMITH:
Colin Smith earned his computer science degree from the University of Texas and spent a decade as a software consultant before pursuing a law degree at SMU, which he completed in 2010 through night and weekend classes. Colin finds fulfillment in assisting families with future planning, focusing his legal practice on estate and business planning, particularly living trusts. He is an active member of the State Bar of Texas, the Dallas Bar Association, and the Dallas Trial Lawyers Association. In his leisure time, he enjoys golfing with his children, leading a Cub Scout den, attending University of Texas football and Texas Rangers games, and engaging in woodworking.
