You spent years building your business. You found the customers. Hired the employees. Paid the bills. Survived the slow months. Took the risks. And, in many cases, built something that supports not only your family, but your employees and their families.

But what happens to that business if you die?

For many New Jersey business owners, the uncomfortable answer is: No one really knows.

Your family may inherit the business, but that does not necessarily mean they know how to run it. Your employees may not know who is authorized to make decisions. Your business partner may suddenly be in business with your spouse or children. Bank accounts, payroll, contracts, leases, licenses, debt and tax obligations do not simply disappear because the owner died.

A good estate plan for a business owner should answer a much bigger question than: Who gets my assets?

It should answer: What happens to my business the day after I am gone?

A Will Alone May Not Be Enough

A will is important, but a business owner usually needs more planning than a basic will.

A will determines who receives property that passes through your estate. It does not necessarily provide an immediate operating plan for your company.

There may also be a period after death before an executor or administrator has the legal authority needed to deal with estate assets. A business cannot always afford to wait.

Employees still need to be paid. Customers still need answers. Bills still need to be paid. Contracts may need to be completed. Taxes and payroll filings may be due.

That is why business succession planning and estate planning should work together.

New Jersey Probate Can Create a Real Business Problem

If your ownership interest passes through your estate, someone may need to be formally appointed through the New Jersey probate process before that person has authority to act for the estate.

That process may be routine in a simple estate, but a business does not stop operating while paperwork is being handled.

The real question is what happens during the gap.

Who can sign checks? Who can deal with the bank? Who can speak to vendors? Who can sign a contract? Who can make payroll? Who can make decisions about employees? Who can access business records?

If the answer is ‘we will figure it out when the time comes,’ that can create unnecessary disruption at exactly the worst time.

A good business-owner estate plan should be designed with that transition period in mind.

Who Can Run the Business If You Cannot?

One of the first questions a business owner should ask is: If something happened to me tomorrow, who could step in?

Sometimes there is an obvious answer. Often there is not.

Maybe your spouse owns part of the company but has never worked in it. Maybe one child works in the business and the others do not. Maybe you have a trusted employee who knows everything about the operation but owns nothing. Maybe you have a business partner, but your operating agreement has not been reviewed in ten years. Or perhaps the business depends almost entirely on you.

Those are very different situations, and they require different plans.

The right person to inherit the economic value of a business is not necessarily the right person to operate the business. Your estate plan should recognize that difference.

What Happens on Monday Morning?

Consider a common problem. A business owner dies unexpectedly over the weekend.

By Monday morning, the employees are calling the family. Payroll is due. A large customer is waiting for a decision. A vendor wants payment. The bank account requires the deceased owner’s authorization.

The spouse knows where some records are, but not all of them. The accountant knows part of the financial picture. A longtime employee knows how the company operates, but does not have authority to make ownership decisions.

Everyone is trying to help. No one knows exactly who is in charge.

That is the kind of crisis proper planning is intended to prevent.

A business succession plan should not simply answer who eventually receives the business. It should answer what happens immediately when the owner is no longer there.

What If You Do Not Die – But Cannot Run the Business for a While?

Death is not the only event a business owner needs to plan for.

A stroke, accident, surgery, serious illness or other medical event can leave you temporarily unable to run the company.

The business still has to operate. Employees still need direction. Payroll still has to be made. Customers still need answers. Vendors still need to be paid. Contracts still need to be handled. Taxes and filings may still be due.

And there is another important reason to plan for incapacity: You may be coming back.

The goal is not simply to keep the doors open until you recover. The goal is to protect the business, preserve its value, maintain customer relationships, keep key employees in place and avoid unnecessary financial damage so that when you are able to return, there is still a strong business waiting for you.

Someone may need authority to deal with the bank, employees, payroll, customers, vendors, contracts and taxes while you are unavailable. But the person named in your personal power of attorney may not necessarily be the right person to run your business. Those are two different jobs.

You may want one person handling your personal financial affairs and another person overseeing the company. That is why incapacity planning should be coordinated with the way the business itself is structured.

Ask yourself: Could my business operate for 30, 60 or 90 days if I could not make a single decision?

If the answer is no, incapacity planning should be part of your estate and business succession plan.

Could Your Business Operate Without You?

Many business owners are the business. They may be the person who knows the customers, pricing, vendors, passwords, banking relationships, employees, contracts and tax issues.

That works while the owner is available. It becomes a serious problem when the owner is suddenly unavailable.

A continuity plan should identify the information and authority someone would need to keep the company operating.

• Key customer contacts
• Vendor relationships
• Payroll information
• Banking information
• Insurance policies
• Pending contracts
• Important deadlines
• Tax filing obligations
• Licenses and permits
• Passwords and system access
• Loan information
• Personal guarantees
• Key employees
• Professional advisors
• Instructions for handling major decisions

The goal is not to hand someone a binder full of paperwork that no one understands. The goal is to create a practical roadmap so the business can continue operating.

Do Not Forget Digital Access

Today, much of a business exists online.

• Accounting software
• Payroll systems
• Bank accounts
• Merchant processing
• Email
• Cloud storage
• Customer databases
• CRM systems
• Websites
• Social media accounts
• Password managers
• Two-factor authentication

A well-drafted plan does not help very much if no one can access the systems needed to keep the company running. Digital access should be part of the continuity plan.

What If You Have a Business Partner?

If you own a business with someone else, your estate plan should be coordinated with your company’s governing documents and any buy-sell agreement.

Otherwise, your death could create exactly the situation neither side wanted. Your family could inherit your ownership interest. Your partner could suddenly find himself or herself owning a company with your spouse, children or estate. Your family may want cash rather than an ownership interest in a company they do not understand. And everyone may have a different opinion about what your share of the business is worth.

A properly structured succession plan can establish what happens to an owner’s interest at death, who has the right or obligation to purchase it, how the business will be valued and how the purchase will be funded.

What If You Are the Only Owner?

A single-owner business has a different problem. There may be nobody with immediate authority and knowledge to take over.

An estate plan can transfer ownership. A business continuity plan addresses how the company actually survives the transition. Business owners need both.

Your Family May Not Want Your Business

This is a conversation that does not happen often enough. You may love your business. Your children may not.

Leaving three children equal shares of a business does not necessarily create fairness. It may create three owners who have very different goals.

One child may have worked in the company for 15 years. Another may want the business sold immediately. A third may want income from the company but have no interest in working there.

‘Divide everything equally’ can become surprisingly complicated when the largest family asset is a closely held business.

Planning ahead gives you the opportunity to decide what fair actually means for your family instead of leaving that decision to them after you are gone.

Protecting the Business From Family Conflict

A business can become one of the biggest sources of conflict in an estate, especially when family members have different roles or expectations.

One child may work in the business every day while another has no involvement but still expects an equal share. A surviving spouse may need income from the business. There may be children from a prior marriage. A new spouse may have very different expectations from adult children. One family member may want to sell the company while another wants to keep it.

None of these situations are unusual. The problem is waiting until after death to figure them out.

Proactive planning gives you the opportunity to decide how ownership, control and economic value should be divided. Equal does not always mean fair. A thoughtful plan can help reduce conflict by making your intentions clear before there is a crisis.

What About Business Debt and Personal Guarantees?

Business owners also need to look at the other side of the balance sheet. A business may be valuable, but it may also have significant obligations.

• Bank loans
• Lines of credit
• Equipment financing
• Commercial leases
• Credit cards
• Vendor debt
• Payroll obligations
• Tax liabilities
• Personal guarantees

A personal guarantee is especially important because the owner may have personally agreed to be responsible for a business debt if the company does not pay it. Your family may believe they are inheriting a valuable business, only to discover substantial debt or estate exposure. Estate planning for a business owner should include a realistic review of both what the business owns and what it owes.

What If the Business Owns the Building?

Some business owners also own the real estate where the company operates, often through a separate LLC that leases the property to the operating business.

That creates another succession question. The person who should inherit the real estate may not necessarily be the person who should own or run the operating company.

The estate plan should address both assets and how they work together, including whether the business will continue to occupy the property, how rent will be handled and what happens if the business is later sold.

What Is Your Business Actually Worth?

Many owners have no idea. They know their revenue. They know approximately what they make. But that is not necessarily the value of the company.

This becomes important when one child will receive the business while other children receive different assets, when a partner will purchase the deceased owner’s interest, or when the family plans to sell the company.

It also matters when considering life insurance and whether there will be enough liquidity to carry out the plan. A succession plan based on an unrealistic value can fail when the family actually needs it.

Where Will the Money Come From?

Suppose your business partner is supposed to buy your interest when you die. Can the partner actually afford to do it?

Suppose one child will inherit the company and your other children will receive other assets. Are there enough other assets?

Suppose the business temporarily loses revenue after your death. Can it still make payroll?

Life insurance is sometimes used as part of a business succession or estate plan because it can create liquidity when it is needed most. But insurance is a funding tool, not the entire plan. The ownership, beneficiary designations, business agreements and estate plan all need to work together.

Do Not Forget About Taxes

Business owners often have more complicated tax issues than someone whose estate consists primarily of a home and retirement account.

There may be income tax returns, payroll taxes, sales taxes, business tax returns and estate or inheritance tax considerations. There may also be important tax consequences depending upon how ownership passes and whether the business is eventually sold.

And if the business already has unresolved tax problems, those problems do not disappear when the owner dies.

Estate planning for a business owner should therefore include a review of both the estate plan and the business’s tax situation.

Your Business Documents and Estate Plan Should Tell the Same Story

This is an area where problems can hide. Your will or trust, LLC operating agreement, shareholder agreement, buy-sell agreement, life insurance, beneficiary designations and actual ownership of business interests should all work together.

These documents should not be reviewed separately. They should work as one plan.

How Proactive Planning Can Help

The best time to make these decisions is while the business is healthy, you are in control and there is no emergency.

Proactive planning gives you the chance to decide who should take over, who should receive the value of the business, whether the business should be sold, how a partner should be bought out and how your family should be protected.

It also gives you time to fix problems that are much harder to fix after death.

Proactive planning also gives you something that crisis planning does not: choices.

When a family is forced to deal with a business after the owner has already died, the options may be limited. Decisions have to be made quickly. People are grieving. Employees are worried. Customers may become nervous. A partner may want an immediate resolution. The business may lose value simply because no one was prepared.

Planning ahead allows those decisions to be made carefully instead.

The goal is not necessarily to keep every business operating forever. Sometimes the right plan is for a child to take over. Sometimes it is for a partner to buy the owner’s interest. Sometimes the best answer is to sell the company. And sometimes the plan should be to wind down the business in an orderly way.

What matters is that you make that decision, rather than leaving your family to make it during a crisis.

Your Business Plan Should Be Reviewed as the Business Changes

Business succession planning is not something you do once and forget about.

Businesses change. You may take on a partner, buy another company, purchase real estate, take on significant debt, grow substantially, have a child join the company, lose a key employee or experience a major family change.

An agreement that made sense eight years ago may no longer fit the business you own today.

That is why business owners should periodically review their estate plan, operating agreement, buy-sell agreement, insurance, ownership structure and succession plan. Major business or family changes should trigger a review.

Could Your Business Survive Without You? Ask Yourself These 10 Questions

1. If I could not work tomorrow, who would be in charge?
2. Does that person actually have the legal authority needed to act?
3. Could someone other than me access the information needed to make payroll and pay critical bills?
4. Who would communicate with my employees, customers, vendors and professional advisors?
5. Does anyone know all of the company’s major debts, tax obligations and personal guarantees?
6. If I have a partner, do our current agreements clearly say what happens if one of us dies or becomes incapacitated?
7. If my family inherited the business, would they know whether to operate it, sell it or wind it down?
8. If some of my children work in the business and others do not, have I decided what I believe is fair?
9. Are my estate plan, business agreements, insurance and beneficiary designations consistent with one another?
10. Could the business continue operating for 90 days without me – and still be a healthy business for me to return to?

If you cannot confidently answer these questions, you have identified where your planning should begin.

The Business You Built Should Not Become a Problem for the People You Love

For a business owner, estate planning is not simply deciding who receives your house and bank accounts.

Your business may represent decades of work. It may be your family’s largest asset. It may employ people who depend on it. It may also carry debts, contracts, leases, guarantees and tax obligations.

Without planning, your family can inherit all of those responsibilities along with the value of the company.

A thoughtful estate and succession plan gives them something much more valuable than a stack of legal documents. It gives them a roadmap.

At Tomes Law Firm, we help New Jersey business owners coordinate their estate planning, business planning and tax considerations so that the business they worked so hard to build does not become a crisis for their family.

If you own a business and do not know exactly what would happen to it if you died tomorrow – or if you were temporarily unable to run it – that is a question worth answering now.

To discuss a succession plan or a temporary plan for sickness or injury contact the estate planning attorneys and business succession attorneys at Tomes Law Firm at 732-333-0681 or online at tomeslaw.com to schedule a confidential free planning session.