Entrepreneurs are often rightfully proud of their businesses. They may have wishes for the business to stay in the family or have another individual or group take over the reins when they are ready to move on. Whatever the plan for the next phase of business ownership, it is important to have a business succession plan in place to help better ensure the transition goes smoothly.
What happens if there is not a succession plan? Businesses without a succession plan may become part of the owners’ estates. If the estate plan or shareholder agreement does not account for the business, the business may go through probate. Probate is a long and often expensive, public court process. The transition of business ownership is difficult enough, but the probate process could be enough to kill the business.
Business owners can avoid the probate process by transferring the business before death or having a clear, binding contract that becomes the business succession plan.
A business succession plan provides for the ownership transition process. When drafting the business succession plan, business owners are wise to include provisions for digital assets. This can include:
- Software. Whether used to track business finances, client information or as a tool to conduct business operations, it is important to know how software will transfer in the event of a change in business leadership. Review how each software company will handle a transition if the business contact or source of payment changes.
- Websites. Review the contract if a third party manages the business website(s). As with all material contracts, make sure a provision is present that discusses a change in ownership. If not, it may be wise to reach out to the website company and get something in writing to explain how the company would handle the transfer.
- Social media. Businesses often use social media for marketing purposes. Maintain a list of the sites that are used and their corresponding passwords in a secure location accessible to key personnel to ease a transition.
It my also be helpful to include an inventory of digital assets in an accessible location. This could be kept with a buy-sell agreement. This can help to better ensure a smooth transition of digital assets with the rest of the business and assets during a change in ownership.