Business succession planning could be vital to your estate planning

According to the Small Business Administration, Colorado's small businesses are a key to its well-being and account for a significant share of the state's economic production and hiring. For those of you who own a small business, that business can account for a large portion of your immediate family's wealth and assets. Accordingly, business succession planning is critical to the financial security of your family after you pass. Indeed, much of one's estate planning goals may be tied directly-or indirectly-to the sale or transfer of a business.

Business Journal magazine observes that establishing a business succession plan is important for any company, but for family-owned businesses it is an absolute necessity. Family-owned and operated businesses have the most to lose-monetarily-when the patriarch or matriarch is no longer at the helm and no plan is in place. The lack of planning is a reason why only about 30 percent of family-owned businesses survive the transition from the first generation to the second.

Entrepreneur magazine reports that, if a business constitutes your most valuable asset, the success of your estate plan hinges almost entirely on how the business is disposed of. Transitioning the business may take years of planning to successfully implement. This is why, according to a recent article in Conversations Magazine, developing a succession plan for a family owned and operated business becomes "incredibly important" to preserving family wealth. There are a variety of business succession planning strategies you can use to transfer a business to a family member including: (1) selling the business to the family member or (2) transferring the business through your estate plan.

Some people may choose to keep control and management over the company until they pass. If the business has not been sold or transferred to the next generation during your lifetime, it will need to be addressed directly in your estate plan. According to the American Bar Association, an estate plan can make sure that your business is not disrupted or otherwise interrupted upon your death or incapacity. If the business will pass as part of your estate in the will, it should be anticipated that the executor of your estate may have to run the company for some time.

Choosing an executor

If a business will pass as part of your estate, choosing an executor, known as a Personal Representative in Colorado, with business experience would be wise. According to Investopedia, if a business passes as part of a decedent's estate, the executor may have to temporarily take an active role running the business and perform such acts as buying or selling assets, preparing the payroll and even hiring and firing employees. An executor who has experience in running the type of business you have established could be useful. In the alternative, consider appointing an executor with at least some specialized knowledge of accounting or tax laws. This would be better than having an unprepared spouse or other relative try to master the intricacies of a complicated business.

Conceivably, as suggested by the ABA, you might want to consider appointing co-executors: one to administer your general affairs and another executor who would be charged with actually running the business for a time.

Seeking legal counsel

If you are the owner of a small business who is ready to retire, you should contact a Colorado attorney experienced in estate planning and business succession. The attorney can offer you practical advice and guidance as to how to structure a business succession plan in order to facilitate your estate planning goals.