Tax season gives business owners one rare thing: a clear picture of what the business actually earns. But there’s an equally important question most owners never ask during that window: What happens to the business if you suddenly can’t show up tomorrow?
Not because you expect something bad to happen, but because every business depends on someone. For many small businesses, that someone is you.
Your tax return shows revenue, profit and expenses. What it doesn’t show is whether your family, business partner or employees could actually keep things running if you died or became incapacitated. A profitable business can quickly lose value when no one has legal authority to access accounts, sign contracts, communicate with clients or make payroll decisions.
For sole proprietors, the problem is especially serious because legally there is no separation between the owner and the business. If the owner dies, the business often grinds to a halt while the estate goes through probate. Employees, vendors and clients are left in limbo.
Partnerships can create different complications. Without proper agreements in place, a surviving partner may suddenly find themselves tied to the owner’s estate or even co-owning the business with family members who were never intended to be involved.
Even LLCs and corporations are not automatically protected. Many operating agreements were drafted years ago using generic templates and never updated. If those documents are silent on death, incapacity or succession, the result can still be confusion, delay and costly disputes.
Most business owners assume they’ll eventually sell the business or pass it down. Few think about the immediate aftermath of an unexpected death or medical emergency, the critical days and weeks when decisions still need to be made and bills still need to be paid.
A proper business succession plan usually requires four key pieces working together:
- A clear succession provision in the operating or partnership agreement identifying who takes over and what authority they have.
- A buy-sell agreement that explains what happens if an owner dies, becomes disabled or leaves the business.
- Key person insurance to provide liquidity and financial stability during a transition.
- A durable power of attorney that allows someone to act on your behalf if you are alive but incapacitated.
Most owners may have one or two of these documents. Very few have all four updated, coordinated and properly funded.
This is also where many people misunderstand the role of their accountant. Your CPA is essential for taxes and financial reporting, but tax preparation alone does not create a legal or operational plan for your business. Someone still needs authority to act, access accounts and carry out your wishes during a crisis.
The good news is that these problems are solvable, but only if addressed before an emergency happens.
Tax season already forced you to look closely at what your business produces. Now is the ideal time to make sure the business, the income it creates and the people who depend on it are protected if life takes an unexpected turn.
Send your questions to ccolan@colanlegal.com and use “Alpine Mountaineer estate planning question” as the subject. We’ll answer your questions in our upcoming issues. This article is provided by your local estate planning attorney, Corina Colan. The Law Office of Corina I. Colan / (909) 265-3315 / www.colanlegal.com
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