Make the transition to your successor easy with a business succession plan
You cannot run your business forever. As a small business owner, planning for your retirement can be much different than it is for employees. In addition to planning for the financial aspects of your departure, as your legacy you may also want to plan for the business’ future.
This process is known as business succession planning. Done thoughtfully, it can ensure that your business continues to be operated according to your wishes long after you stop having an active role in its leadership.
A business succession plan makes the process of transferring a business to its new owner upon your retirement or death as straightforward as possible. It eliminates many of the issues that can arise when a business owner chooses to retire or dies suddenly, such as:
- Cash flow difficulties;
- Conflict among shareholders;
- Conflict among the deceased or retired owner’s children regarding who will take over the business and how it will be run; and
- Difficulty settling the owner’s estate, if he or she is deceased.
Start working on your business succession plan long before you actually plan on retiring. Over the years, you might need to amend the plan to fit changed circumstances.
The first step in creating a business succession plan is meeting with an estate planning lawyer to talk over your goals and concerns for the business’ future. These will determine the terms of your business succession plan.
A few key issues to consider include:
- How a specific succession plan will impact family dynamics if you are considering having a relative succeed you;
- Your business’s value when you retire and how it will be determined. Will it be appraised, or will it be determined through some agreed formula?
- Will life insurance be part of your plan? This is nearly always a good idea because the proceeds from a life insurance policy can be used to buy out the deceased owner’s share of the business and distribute it among the surviving owners; and
- The mode of transition itself. Will you transfer the business as a gift to the new owner or through a purchase agreement? If it is the latter, will the new owner have the option to finance the purchase?
To create a solid business plan that ensures your business ends up with a successor you trust, work with an experienced estate planning lawyer. Your lawyer knows all the bases to cover and will work with you to ensure your business succession plan reflects your wishes. To get started, contact The Law Office of Gregory W. Kabel, P.A. today to set up your free consultation in our office.