Introduction

Small business succession planning answers an important question many business owners either ignore or are altogether unaware that they even need to answer, which is: “what is your exit strategy?” In the United states, small and medium-sized businesses account for the majority of businesses in existence, but many or most of these businesses hardly ever live beyond their owners or founders.

This poses the question, why is so much time, money and effort put into growing a business and ensuring that it is successful, with little to no thought given to the survival of the business beyond its owner, which in itself, can be a step towards ensuring its success or longevity.

This article will discuss the concept of small business succession planning and its overall importance in the life and/or success of a business.

Business succession planning is the concept of planning, identifying, developing, and deciding on a new business owner and/or manager that is to replace the previous owner after he or she retires, resigns, dies, or is otherwise incapable of continuing to run the business. It is a fact of life that human beings are mortal and will cease to exist after spending a certain amount of time on earth. Or that they may become incapacitated by an illness or an accident of some sort. There is however no specific law that says that businesses have to be mortal, and in that sense, a business can in theory live ‘forever,’ or at least for a significantly longer period of time that its owner can. This can however only happen if a proper succession plan is put in place.

Types of Small Business Succession Planning

There are several types of small business succession planning. It may however be ideal to consult with a business attorney to advise what type may be best suited for your particular business and the environment which it operates in.

Having said that, some of the most common types of small succession planning include:

Inheritance

Small businesses can be passed on to the heir or heirs of the owner or founder via inheritance. In this instance, the heir may inherit the business if it is stipulated in the will of the owner, or where the person dies intestate, the business may automatically pass on to this heir according to the intestacy laws of the particular state where the business is located.

This may be the easiest type of succession planning but it can often be detrimental to the business if the heir has no clue or idea on how to run or manage the business. In this instance, the business can potentially run into trouble which may eventually lead to its liquidation or winding up.

BuyOut

A business can outrightly be sold to persons or companies outside the organization, as a way for the owner to exit the business while ensuring its continued existence. In this scenario, the owner will likely have conducted a proper evaluation of the business to determine its worth, while also conducting some due diligence on the potential buyer to ensure that they have the capability and other resources to ensure the continued survival or existence of the business.

Of course there may be many other things that need to be taken into consideration regarding an outright sale of the business, and only the owner, perhaps in conjunction with other employees or stakeholders can come to the determination of whether this is the best succession option.

This buyout arrangement can usually happen with a business partner, employees of the business, the general public or even a competitor.

Sale of Ownership Interest

In situations where the business is registered as a corporation, the owner may decide to sell some or all of their stake in the business to one or more stakeholders. This is yet another way in which the owner can divest themself from the business, in the hopes that the new stakeholders will do everything in their power to ensure that they see a return on their investment by keeping the business alive, even after the original owner has completely exited, or reduced their shareholding.

Transfer of Management

The management of a business can be transferred to key and trusted employees as a way to maintain continuity after the owner(s) exit. For this transfer to be effective and successful, the owner will likely have spent some time deciding on exactly which employee(s) to transfer this management mantle to, training and preparing them for this eventuality, and making sure all other processes, legal and otherwise, are put in place to make this happen.

In such situations, while the ownership of the business might transfer to the heir(s) of the owner, the management thereof will transfer to existing employees, who are already knowledgeable in the running of the business, thereby increasing the chances of the business’ survival after the owner has left it.

The Importance of Succession Planning

Without a succession plan, there will often be a lot of uncertainty that surrounds a business in the event of its owners’ exit, moreso if that exit is sudden and unplanned. This is particularly true of single-owner businesses. Multi-owner businesses, on the other hand can sometimes be shielded from this uncertainty, as the other owners will often carry on running the business if one owner exits.

For a single owner business, the chances of the business’ death is very high when there is no succession plan, and various statistics offered up by different research papers seem to suggest that the high death rate of small businesses, is in part attributable to an absence of an exit plan by the business owner.

Given the importance of a succession plan for the survival of a business, it can often be a good idea to include necessary or select family or relatives in the process, while of course seeking experienced legal advice where appropriate or needed. Even if these family members might not inherit the business after your demise or incapacitation, it is still a good idea to keep them informed, if only so that they can ensure that your wishes are properly carried out after you are gone.

Below are a few specific benefits of small business succession planning worth mentioning.

First, a succession plan can often ensure that a specific program is put in place for the proper training and development of the human capital that may potentially take over running of the business in future. This professional development can take one or more of several forms, including; job shadowing, mentoring, coaching or a gradual increment in management responsibilities, either of which will go a long way in preparing the individual(s) for the role when it comes, and ensuring a smooth transition.

Similar to, and continuing from the previous point, a succession plan helps a business (owner) actively take note of, and be aware of employees who exhibit traits of being capable of taking over management and/or leadership of the business in the future. Without the existence of such a succession plan, the business owner would perhaps be more likely to simply see such person or people as being good or hard working employees. An active succession plan can, on the other hand, rather make the owner see the employee in terms of; “I think she/he might be the best person to take over from me,” therefore allowing ample time for corporate knowledge transfer.

A third benefit to be had from a good succession plan revolves around tax benefits that can accrue either to the business itself, or to the heir(s) of the owner who inherit the business. Many states in the U.S. have their individual inheritance tax laws, including the federal government. A good inheritance plan which has factored in this tax burden, can sometimes, with the help of a qualified accountant or tax attorney, find creative ways to minimize the payable tax on the inherited business, which can sometimes prevent the business and/or new owners from getting into financial difficulty, which may consequently affect the business’ survivability.

Perhaps the most obvious benefit of them all, is that the business can continue to live on. This is obviously the main reason and intention behind the plan, and more often than not, depending on the quality of the plan, the objective is often realized. This can then allow the business owner to have less worries about what will happen to the business for which he or she has worked so hard on, after he or she or she is gone.

In Conclusion

There are more instances where the importance and benefits of a small business succession plan can be highlighted, but suffice to say that the few mentioned above should hopefully be enough to encourage and convince any small business owner that it really is in their best interest to not delay in working towards drawing up this plan.

Bio

Kanayo Okwuraiwe is a startup founder, an incurable entrepreneur, a digital marketing professional, a chess lover, a brother, a son, a friend and more. His latest project has seen him create a digital marketing agency called Telligent Marketing that provides law firm SEO services to help lawyers grow their law practices.

As a manager or business owner, it is of the utmost importance to stay on top of industry standards and government regulations. If you don’t, you risk costly lawsuits, might miss out on valuable government grants and tax breaks, and could garner a poor reputation with a jaded customer base.

Review Regulations That Apply Now

It can seem daunting to wade through all the required licenses for your industry and to keep track of when they need to be renewed, but fortunately there are lots of sites that list permits you’ll need for your business by industry or by state. Many government websites also explicitly list rules and regulations for industries such as the liquor and nuclear industries.

Cybersecurity, for example, is a huge problem for businesses around the world. The healthcare industry and any business that works with medical records or information, such as insurance, is subject to regulations that help keep medical records safe.

Additionally, any business that deals with online payments or credit card transactions is subject to Payment Card Industry Data Security Standards (PCI DSS). These regulations help to keep customer data safe in the same way that HIPAA and healthcare regulations protect patient data.

Make sure that you’ve reviewed these rules and comply with them. Even if you are not the subject of a lawsuit, failure to comply with these standards could mean that the government forces you to close your doors for a time or stop selling a certain product, which could cause you to lose a significant amount of revenue.

Prepare for Future Regulations

It’s also important to know about rules that you might break in the future. For instance, if you’re a small business, make sure you know what rules will apply once you grow a little larger, such as how many employees you will be allowed to have working in a certain space, or federal and state safety rules regarding fire escapes and smoke detectors. Knowing these regulations in advance will help you grow into a larger company more quickly and without too much hassle.

Tax regulations and law, for example, could take you completely off guard as you grow. As the experts at MileIQ write:

“Hiring employees places you in an entirely new bracket of tax complications. It’s one thing if you make a mistake calculating an employee’s payroll and correct it the next week. When you make a mistake calculating your IRS payroll deductions, consequences can be far worse.”

Remember, the government’s standards and regulations change all the time — it’s up to you, not them, to protect your business by staying up to date. Creating a calendar and marking the dates on which you need to renew licenses, as well as regularly checking government websites for your industry’s standards and rules, will help you keep your business operating legally.

Use Regulations to Your Advantage

Tracking standards and regulations is not only great for helping you keep on the right side of the law — working knowledge of standards and regulations can help you save money too. For instance, knowledge about size regulations for small businesses may prove useful for you as you apply for government grants and calculate tax breaks and tax deductibles. Sites like the U.S. Small Business Administration’s website list guidelines for small businesses as well as certificate programs. You can also save money by setting a standard that is higher than the industry for your company.

The government often provides incentives, in the form of lower interests rates on loans, tax breaks, and even grants, to those companies which shoot for higher than the legally established industry standards. For instance, the Small Business Innovation Research Program is designed to promote technological research and innovation in small businesses, and it’s just one of many such programs that apply to a diverse range of industries.

If you’re part of a larger corporation, it is just as important, or perhaps even more important, for you to track industry standards and regulations. Business.usa.gov is an important website for both large and small companies that outlines regulations and standards on subjects as diverse as growing your business, exporting and working with foreign companies and affiliates, and state and local rules. Finally, IRS.gov is an important website for any business when it comes to learning about regulations in regards to taxes.

These standards are of the utmost importance because they protect you, your employees, your customers, and the industry at large. Failure to comply can result in hefty fines, problems for your customers, and, at worst, could equate to business failure. While small business failure is something that you can recover from, why dance with risk in the first place?

It may seem tedious to research and keep track of all the industry regulations and standards related to your business, but doing so can give your business the competitive edge it needs to remain viable and grow. Don’t be lazy — be informed. Stay on top of compliance and regulation.

As any successful entrepreneur will tell you, it’s vital to plan for the best — but be prepared for the worst. And it’s hard to imagine anything more daunting than a criminal tax investigation.

First of all, it’s important to note that all criminal tax investigations aren’t triggered by alleged taxpayer malfeasance or illicit behavior. A simple mistake or oversight, some eyebrow-raising deductions, or an accountant’s incompetence or malpractice can all initiate a routine audit, which can be elevated to the level of a criminal investigation. And that’s where the IRS’s Criminal Investigation Division (CID) enters the picture.

About the IRS’s Criminal Investigation Division (CID)

Forget about the bumbling, bureaucratic “couldn’t hack it in the private sector and so become a public servant” IRS auditors you see on TV and in movies. The CID is comprised of Special Agents who are highly trained financial investigators. They also carry a gun, which tells you pretty much all you need to know about how serious and often dangerous their work is.

Once CID gets involved in an audit, expect the process to take years. Your family members, friends, co-workers, employees, bank officials, associates, financial planners, accountants and so on may be interviewed for the purpose of obtaining tax evasion or tax fraud evidence. If the facts add up to a conviction, the fines are massive and a custodial sentence is not outside the realm of possibility. For example:

• S. v. Mauricio Cohen Assor (Florida, 2011) – The defendant received 120 months in jail, as did his son.
• S. v. Monty D. Hundley (New York, 2005) – The defendant received 96 months in jail.
• S. v. Brett G. Tollman (New York, 2004) – The defendant received 33 months in jail. His mother and other relatives were also convicted and received jail time.
• S. v. Diana Hojsak (San Francisco, CA, 2007) – The defendant received 27 months in jail.

Signs Your Audit May be Headed for Criminal Prosecution

If during an audit any of the following “tell-tale” signs emerge, then it’s possible that your case may be heading for a criminal referral:

• The IRS agent inexplicably and without warning or notice ceases communication.
• The IRS agent suddenly shifts from fact-related questions, and starts asking state-of-mind questions (e.g. “Didn’t you realize…” and “What were you thinking when…”).
• You receive a summons for closed tax periods.
• You receive a summons for periods other than those listed in the original examination notice.

What to Do it a Criminal Investigation is Initiated or Possible

If your case becomes a criminal investigation, or if you believe that things are heading in that direction, then here are four things to do right away:

• Terminate all direct contact with the IRS – and don’t even think of contacting the field agent who was conducting your audit. He or she can’t and won’t help you. In fact, trying to communicate with them will make things worse for you. Besides, they have no authority to do or stop anything.
• Get your tax records together. If necessary, request third parties to send them to you ASAP.
• Do not communicate with third parties (other than the above-noted request, which should be done in writing), as this could be construed as witness tampering.
• Retain a tax attorney who has experience dealing with the IRS. Remember that any conversations with your accountant, bookkeeper or any other financial planner – along with any work product – isn’t protected by attorney/client privilege.

The Bottom Line

I won’t sugar coat it: a criminal tax investigation is serious business. But it doesn’t have to be devastating, or derail your entrepreneurial dreams or vision. Stay calm, get informed, know the rules, and follow the advice of your tax attorney down to the letter. You’ll make it through.

Article Contributed by Walter Moore

There are different formulas for business success but a quick glance at various successful organizations showcases some similarities between them. There are crucial steps that successful businesses follow and their initial strategies have a significant effect on their outcome.

Determination

One of the steps that thriving businesses take is to be courageous enough to turn their ideas into reality. A viable idea and a sustainable desire to implement it is a basic aspect of being successful in business. Finding a niche involves something that you are passionate and knowledgeable about.

Perseverance

Entrepreneurs need to be able to withstand setbacks along the way. Allowing obstacles to deter will compromise your ability to achieve your business goals. Learn from the mistakes that you make and make an effort to avoid them in future. When you use a crisis as a learning opportunity, this contributes to growth and development.

Discipline

Owning a business gives you a sense of freedom. However, you need to have self-discipline and handle your freedom responsibly. The survival of your business depends on how dedicated you can be without direct supervision.

Commitment

When you have a business idea, you need to be committed to it as well as the people who are involved in your plans. Whether they are family members, friends or employees, a strong network is crucial to sustaining a business.

Patience

Patience is a key factor for entrepreneurs because success cannot be expected overnight. It takes time to establish a profitable venture. A patient approach will enable you to preserve during challenging phases and remain focused.

Flexibility

Along with a brilliant concept for your business, you need to be flexible enough to adapt to changing needs. Maximize on your customers base and do what it takes to make your products and services as accessible as possible.

Hiring Business Attorneys

Gehres Business Attorneys are among the professionals that a business needs during the early stages of setting up. For some business owners, the reasons for hiring lawyers may not be obvious but the reality is that a lawyer can provide assistance for virtually all areas of your business.

Experience

While hiring a business attorney, there are different factors worth considering such as the lawyer’s level of experience. Do not hesitate to find out how much experience a potential lawyer has in dealing with business issues. If you have a specific issue that you need help with, for example, business incorporation, ask the lawyer if they have dealt with incorporating businesses before.

Resourcefulness

A business lawyer should ideally be able to identify problems, provide solutions and refer you to other specialists when the need to do so arises. If you have specific legal needs, you need a lawyer who is familiar with them or can recommend someone who specializes in that area.

Knowledge

A lawyer also needs to be acquainted with your field and its legal issues. Your lawyer is expected to keep all your information confidential and adhere to the code of ethics that guide s the legal professions. An attorney should be ready and willing to give you and your team the information you need regarding the legal aspects of your business.

Article Contributed by Rand Brenner

Deciding when to license your intellectual property is always a question. License your intellectual property too early, and no one is interested. License it too late, and the market is shifted in a new direction.

Your IP goes through a life cycle. First it’s created, then it moves into development, then it’s ready to commercialize. The ideal time to license is somewhere between the completed development and when it has traction in the market, and is ready to grow and expand.

But how do you decide if it’s better to license your IP or commercialize it yourself? To help you answer that question, here’s a list 7 signs that licensing may be a better strategy than commercializing it yourself.

1. Your IP is an incremental improvement to an existing technology used in current products or by other companies. Industries such as high tech and consumer products use incremental IP to improve their products with new features increasingly desired by consumers. Some examples of include the Apple’s IPOD (the incremental accessories are licensed), GPS systems (incremental version for cars), and automobile features (the incremental IP improvements such as electric windows, ABS break systems, air bags, and many others).
2. Your IP is market ready, meaning it works and customers will buy/use it. This includes making sure it’s protected, customers are identified, and it’s been tested with a prototype or is selling on a limited basis, such as on-line or through retail stores.
3. You’re competing in a crowded field with lots of players and there is a high risk of potential infringement. An example is the high tech industry, which is not only highly competitive, it also prone to lots of patent infringement litigation.
4. It’s in an existing market where customers’ loyalties already exist with particular brands and companies. A good example is soda beverages, where Coke is the dominate brand with high consumer loyalty to their product. It’s very difficult (if not impossible) to convince these customers to drink a different cola drink. This consumer loyalty enables Coke to capitalize on these customers with their other types of beverage products.
5. The distribution channels for your IP are dominated by existing companies. Food is a good example. It’s very difficult and expensive to get a new food product on supermarket shelves. Big food companies, such as General Mills, Kraft and many others dominate the retail shelves. I worked with a client that invented a packaging and dispensing system for the professional hair salon market. This distribution channel is dominated by very big consumer products companies, such as L’Oreal and others. Rather than try to compete against these big players, it’s much better to license to one of them.
6. Your IP is complex, requires a lot of R&D, regulatory approval or rights to other outside IP, and makes raising capital difficult. Or your IP is in a technology area that’s not favored by investors, such as semiconductors and consumer electronics.
7. You don’t have a management team with the experience and resources.

Keep these 7 signs in mind when considering whether licensing is the right strategy to commercialize your intellectual property. Timing is everything when it comes to licensing. Changing technology, customer demand, legal regulations, and a score of other things are constantly creating new windows of opportunity for innovative intellectual property. Knowing when to license your IP can make the difference between signing a big deal or floundering in the market.

About the Author

Rand Brenner is an IP consultant and licensing agent. For more information, email rand@licensingcg.com or visit his blog at www.licensing4profits.com.