When a spouse and children rely on a family-owned business for their support, an unexpected loss could result in financial devastation. Without plans for a competent individual to take over the business, a small family-owned enterprise may come to a sudden and complete stop.

As reported by Forbes magazine, nearly 60% of family business owners surveyed in 2018 admitted to not having established transition or succession plans. Almost half of the business owners over the age of 65 claimed they did not have a successor lined up.

Preventing the sudden closure of a business

Family members and dependents require a steady flow of income to maintain their living standards. While not all heirs have the skills or desire to start managing a business, a plan for continuing its operations reflects a benefit for the owner’s spouse, children and customers.

According to Money.com, creating a buy-sell agreement may provide a prearranged contract for a co-owner or partner to take over a business for a specified price. A proactively negotiated agreement may provide a family with a reasonable degree of assurance regarding the future. It may help remove uncertainty over who they could count on to run the business during an unanticipated emergency.

Preparing the necessary documents

An effective estate plan requires the creation of several important documents for a smooth transition. As in many other circumstances, it may reflect a wise decision to not put things off until “the last minute.”

Business owners might mistakenly assume setting up a formal succession plan shows they have given up on their enterprise or they may have become “too old” to manage it. Without a plan in place, however, surviving family members may not have the means to support themselves.