Wasted toil

 

guest commentary by David Potts

When I was growing up, the church I attended taught classes on how to evangelize, or witness. One of the questions you were taught to ask your person of interest was, “If you were to die tonight and stand before God and God were to ask you ‘why should I let you into heaven, what would you say?’”

The point of this question was to get the person to wonder if he was going to spend eternity in heaven or hell. Right now, I would like to ask you a similar question. If you were to die tonight and stand before God and He were to ask you this question, “Hey stupid, why did you die without a succession plan for your business? Were you totally unaware of the grief, anxiety, and pain you would cause your wife, children, and loyal employees?”

What would you say?

As you stand there dumbfounded, I imagine God would go on to say your last act on earth was one of selfishness when it should have been one of selflessness.

Let’s take a minute to review the basics. What is a succession plan? Who needs one and why?

A succession plan is simply a plan or set of instructions for your business to continue without significant interruption in the absence of its current leadership, usually you the business owner.

Although my introductory paragraph is in the context of death, a succession plan isn’t a death plan. It is a plan to protect your business, its profitability and market value, in the event of any life event that prevents its key employee(s) from performing their management function. A well thought out succession plan would also plan for the retirement of these key employees.

I read recently that more than 90% of small businesses don’t have any type of succession plan. If you are like the majority of these owners, stop a moment and think. You spend most of your life building your business. Your business is the largest and most valuable asset you own. What would happen if your business was deprived of your presence? Would it die suddenly or suffer a slow lingering death? If you have properly managed your job as the business’ leader, your business should continue uninterrupted or you or your estate should be able to cash out by selling your business or liquidating in an orderly manner preserving most of the value you created.

As a CPA I regularly see businesses go out of existence. Once in a while the owner will sell the business at the height of its value and provide well for his retirement and his family, but many times the business ends abruptly, or dies slowly, losing the value of a life’s work. These events are sad. The greatest thing to see is a successful business continuing in existence and prospering long after the original owner has left the business. With some foresight and planning most businesses can achieve a life beyond the original owner.

What would happen if you were to die tonight?

You might not go to hell, but you could be leaving your family in hell. A hell of trying to know what to do with the business since you were too busy to leave any instructions plus lost profitability and high fees for consulting attorneys and accountants to straighten out your mess. Your business needs a succession plan. How would you like this to be the last line in your obituary: “He loved his family but left his business to his attorney?”

Watch for my next commentary in The City Wire where I will discuss how to prepare a succession plan.

About Potts
David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

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