You've inherited a business. Now what?
It’s a financial and emotional journey. Here’s where to start.
Inheriting a business is an honor. But it can also weigh heavily on you. There’s pressure to continue the legacy established before you and feel like you’re doing right by your loved one. There’s also the chance you inherited the business unexpectedly, which can be overwhelming. Hopefully, there were succession plans in place, you know the ins and outs of the business, and the team is familiar with your leadership.
Regardless of the situation, having a trustworthy sounding board in your advisor and other professionals can help you in the transition.
Once you fully understand the state of the business, you can contemplate your next move.
You’ll want to know where the business stands, financially and operationally. It’s important to assess the current value of the business and its potential future with a new leader. If the business relied heavily on personal expertise or relationships of the decedent, for example, it may be difficult to simply pick up the reins.
Within six months of inheriting the business, you must have the value of it assessed for tax purposes. It will be revalued as of the date of death, and then it may be revalued in six months if the estate administrator thinks the value may have decreased. Consider the tax implications of the estate and coordinate with your advisor and legal counsel about how best to handle it. Taxes are due nine months from the date of death or must be financed at the current interest rates (by the government or a financial institution).
You may have the option to defer payment of taxes, or request a hardship extension, if necessary. There are also some exceptions that allow more time for payment for certain types of businesses, so it’s worth seeking a tax professional’s advice before taking guidelines at face value.
Ideally, the decedent had a succession plan and you (as the inheritor of the business) were fully prepared for and briefed on it, so these considerations are already part of the discussion and time is on your side.
Options for moving forward
Once you have the full picture of the business, you can determine the best course of action moving forward. Just because the business was passed down to you doesn’t mean you need to run it or even keep it. While you may feel a connection to it – understandably so – or feel that you need to commit to continuing operations, it’s OK to recognize if it’s not the right fit for you. Here are three choices to think about:
- Run the business. If you plan to lead the business, start by understanding it and avoid making sweeping changes immediately. You should review bank statements and other paperwork to determine the financial status and notify vendors and customers of the change in ownership (and leadership) as necessary. Work with staff to ease the transition; be patient with employees, because the transition may mean quite the cultural shift. After you’ve straightened out the operational and functional aspects, you can clear space for thinking practically about future plans.
- Keep the business and enlist a team of professionals. Bringing on a business partner to share the burden of ownership may be an option if you want the business to remain operational but you’re not sure how much interest you have in working in it. Another option is hiring professionals to share the workload, like a business attorney, CPA or fractional CFO. They can offer expertise, split the workload and make the transition easier (and smoother). It’s wise to consult with professionals and formalize this by getting an agreement on paper.
- Sell the business. You may decide selling the business is best. The next step is to determine how best to sell it. Depending on the type of business, options will differ. For example, a buyout might be the best avenue for a corporation, whereas selling a smaller business might be better done by offering it to an independent third party. A business broker may be able to help you navigate this decision.
Taking on the responsibility of your loved one’s business is a lofty mission, but there’s good reason they entrusted it to you. Give yourself grace as you navigate this, as it’s both a financial and emotional journey. Remember you’re not in it alone. Your advisor and the other professionals you trust can help support you through it.
Sources: nerdwallet.com; schwab.com