THE IMPORTANCE OF SUCCESSION PLANNING FOR ENTREPRENEURS
As entrepreneurs, we’re taught to have a solid business plan – to know what problem we’re solving, why we’re best equipped to solve it, and why we’re uniquely positioned to succeed versus our competitors or incumbents. But most business plans neglect one key element of it: business succession and estate planning. Everyone plans to hand their business over elegantly through a sale, or by handing the reins to someone after we retire – what we don’t expect is to pass away unexpectedly and leave our business in limbo. But just like we buy life insurance to protect our families in case the unexpected happens, as entrepreneurs we need to put plans in place to ensure our business lives on. Here are a few elements to consider when making your succession plan.
DISCUSS YOUR WISHES IN THE EVENT OF AN EMERGENCY
While none of us wake up expecting to get in a car accident or suddenly pass away, it’s important to think about your wishes related to the business if you were to become incapacitated or die. Would you want the business to shut down, continue independently, or be sold? Who will replace your role – an existing employee or external hire? What’s the legacy you want to leave with the business, and is there anything else they should know about making those decisions? It’s likely you haven’t even thought about these things, so putting them on paper – or at least considering them – is a good way to start.
Your last will and testament – or a dual will if you’ve created one – can allow your executor can make business decisions on your behalf. But just like it’s important to have discussions with your executor about your funeral and end-of-life wishes, it’s important to discuss your business wishes as well. Providing your executor with the answers to those key questions will ensure you have a clear plan that can be followed in the event of an emergency.
DOCUMENT CRITICAL INFORMATION
As entrepreneurs we hold so much of our business plan and daily operations in our head – in an ideal world we’d have every account, password, and process documented and shared with key people, but the reality is there’s often information that only you know. Part of planning for the unexpected is ensuring you’ve documented critical information, and shared it with either your lawyer, your co-founder, a senior team member, or a family member who can provide access to it in the event of an emergency.
We saw the worst case scenario play out with the case of Quadriga founder Gerald Cotten. The founder of the cryptocurrency exchange died unexpectedly, and took with him the digital keys to his clients’ crytpo holdings, leaving over 76,000 customers out of pocket to the tune of $200 million. While most of us don’t have crypto keys floating on our hard drive, you most likely have business critical info you haven’t passed on.
BUILD IT INTO YOUR SHAREHOLDERS AGREEMENT
Succession planning is often about us planning to pass on our business – but it should also encompass all of your shareholders, including co-founders, investors, and employees. If you’ve drafted shareholders agreements, you should include a provision that pertains to what happens in the event of a shareholder passing away. Your lawyer can help you build provisions into your shareholders agreements so there’s a clear course of action for how those shares will be dealt with in the event that someone passes away.
MAKE SURE YOU HAVE A WILL
While we’re focusing on business succession planning, estate planning is just as important for entrepreneurs. Every adult with assets, a home, minor children or pets, or who is married or in a common-law relationship should have a will. A will dictates who gets your assets and who cares for children and pets when you pass away, and not having one means the courts make those decisions for you, and it means your family members are left to guess at what you would have wanted.
Regardless of whether any of those other criteria apply to you, as an entrepreneur, you definitely need a will since your business is likely one of your biggest assets. While your will can include a clause related to your business allowing the executor to make decisions on your behalf, you can also create a dual will, which separates your estate into two wills in order to avoid additional taxes if your shares or other accounts require probate. As the founder of estate planning platform Willful, I encounter people every day who have children, businesses, and sizeable assets who haven’t taken steps to protect their families by creating a solid estate plan – as an entrepreneur, you’ll likely want to get legal advice from an estate lawyer to create your plan, but for anyone with a simple estate, you can consider an online will platform like Willful.
THE BOTTOM LINE
At Willful we conducted research that found that 65% of parents with minor children in Canada don’t have a will, and 67% of adults don’t have an up-to-date will. That means there are about 16 million Canadian adults who haven’t protected their families by creating a will, and a large number of those people are entrepreneurs, freelancers, or side hustlers who need to worry not only about their family, but about how their business lives on. Taking the time to think about succession planning means you’ll have peace of mind that your family is protected, but your business is too.
The Canadian Women’s Chamber of Commerce is committed to helping entrepreneurs with every aspect of running their business, including estate and succession planning. That’s why we’ve partnered with Willful to share important information about this topic.
CanWCC members get 10% off any Willful plan. Become a member today.