Now that the weather is warming up, it’s “Spring Cleaning” time. Many people are likely tackling projects around the house that they weren’t quite prepared to take on while it was still cold and dark. When you think “Spring Cleaning,” you are probably less likely to think about your small business. However, it’s a great idea to get organized now so that if you die or become incapacitated, someone can pick up where you left off and keep the company functioning properly.
Here are some ideas to get you started:
- Titling: Who owns your business? If you own it outright as a sole proprietor, consider whether formal organization as a corporation or limited liability company would insulate you from potential liabilities. If your estate plan includes a revocable trust, the trust can own the corporation or LLC. This helps facilitate a smooth transition, because your revocable trust names successor trustees who are authorized to take control of your assets and the business in the event you die or become incapacitated. If you do not have a trust, your agent under your power of attorney (if you are incapacitated) or your executor under your will have this authority.
- Licenses: Many types of business require licenses or need permitting that are tied to an owner or an employee. For example, contractor’s licenses are issued based on officer, director, or designated employee passing an exam and meeting certain other requirements. Financial advisors, likewise, have examination and licensing requirements in order to transact business. Are there other persons within your company that satisfy these requirements if you or that designated employee are very ill, mentally incapacitated, or deceased? If not, consider your emergency or succession plan and train another individual to meet the requirements so that business does not grind to a halt.
- Passwords: As more and more services move to the internet, this is increasingly important. Do you have a password convention or system in place, or a record of all your passwords stored somewhere safe? If not, the person responsible for your business will spend considerable time and energy trying to retrieve these passwords, sometimes with limited success. We know there are apps out there to manage passwords, but we are also fans of a list or spreadsheet on good, old-fashioned paper in a secure location. Ultimately, your most trusted individual needs to understand your system and how to gain access.
- Leases and Promissory Notes: If you lease your office space or any equipment, put together a list of contacts and other important information (payment interval and amount, the person or entity to whom the check should be made, etc.) to prevent warning letters arriving in the mail. The same concept applies to notes payable by the company.
- Payroll: If you are temporarily or permanently absent from your business, your employees still need to get paid. If a payroll company or outside accounting firm handles these matters, make sure there is another trusted individual that can authorize and approve processing payroll to keep things running smoothly. For example, hourly employees’ time worked may require approval each pay period. One more thing to note – if one of your employees handles this process, make sure you know how it works, too!
- Vendors and Accounts Receivable: Finally, all businesses pay bills and need revenue. More than one person should understand this system, what invoices should be sent, and what invoices need collection.
These are a few common “spring cleaning” issues small business owners should think through, but there are likely challenges unique to your business. The goal is to minimize disruption to your employees, customers, and vendors while your successors in interest make a plan to either wind down the business or transition to new ownership, either by your heirs, your employees, or an outside purchaser. Having a strong transition plan in place can make the difference between a strong company that can continue operations (and be sold) and a weakened one that experiences setbacks or is forced to shutter its doors by outside factors. It’s also a great habit to start now as you anticipate growth – the more systems you have in place to organize these issues, the easier it will be to add new employees, expand into other markets, or add new locations!
Questions? Contact Schooley Law Firm. We love meeting entrepreneurs and would be happy to help you get organized.