Entrepreneurs Urged To Plan For The Future

The News-Times, Danbury, Conn.

Starting a business usually brings thoughts of profits, independence and maybe financial security. Continuity plans in the event of the owner’s death are far from a priority

But the future of the business, particularly when partners or members of the family are involved in the operation, needs to be addressed, according to professionals in the industry.

“What makes estate planing for business owners so much different from individuals is that there must be continuity of the business; there can’t be an interruption,” said George Koeltl, a certified financial planner with Danbury-based Reby Advisors.

“There needs to be someone there who can unlock the door to the office, knows the computer passwords and who can write checks out to the vendors. These are all very important functions that need to be maintained. You can’t afford to have the business shut down for a month while these things are figured out.”

Danbury Probate Court Judge Dianne Yamin said in cases where there is no will or estate planning in place, a court would appoint a temporary administrator to handle the businesses operations.

“I would always urge anyone to have a will, but business owners especially should consult a business attorney and have a succession plan in place,” she said.

Different types of businesses such as partnerships, sole proprietorships and family businesses all require different planning, Yamin said.

“It’s bad enough when friends enter into a business together and aren’t planning their exit strategy, but when family members start a business and don’t have a plan in place, it can destroy the family and the business,” said Hillel Goldman, a Danbury-based business attorney with Mix & Goldman. “A family business that doesn’t have an anointed successor can have all sort of problems.”

Many professional urge new business owners to draft a buy-sell agreement that lays out what will happen in the case of the death or disability of a key member of the operation.

Estate planning for small business owners

-Estate planning should be considered when starting a business

-Owners should select a “key man” who can operate the business upon their death

-The key man needs access to financial accounts, passwords and vendors.

-Ensure that the power of attorney for the key man has been established

-Have a succession plan in place

-Put in place a buy sell agreement for the business

-Consider purchasing a “key man” life insurance policy on business partners

“Planning is critical but most people want to put it off because they don’t want to deal with it,” Goldman said. “New clients are often blown away when one of my first questions is about their exit strategy.”

Buy and sell agreements, also known as shareholder agreements, can have a wide range of stipulations for different situations, he noted, including the death of a partner and whether the entity or other owners will purchase back their equity in the business. Many business owners, he said, also have key-man insurance that can cover the costs of purchasing back a deceased partners equity in the company.

“A shareholder agreement can address many of the problems up front that could arise and there will eventually be some kind of problem,” Goldman said. “It’s best to come to an agreement during the honeymoon phase of the business when everyone is still getting along. Once problems occur, it’s too late.”

In the worst-case scenario when no planning is in place, a business will often be dissolved upon the owner’s death.

“That’s what we call a fire sale,” said Koeltl. “And I’ve never heard of anyone getting a good deal during a file sale. It should be avoided at all costs.”