Planning for business continuity in every eventuality
Watch the webinar ‘Essential Succession Planning for the Savvy Business Owner.’
How would you feel about being a shareholder with your business partner’s spouse? Did your family receive fair value for all of your hard work? Are you giving the government extra taxes?
What is business succession planning?
Business succession planning is an essential tool to use in protecting your business interest as well as maximizing the value of your business for your loved ones, and ensuring that all of your key employees will keep their job even when you’re gone. Effective succession planning allows a business to run uninterrupted despite the retirement, incapacity, or death of the business owner. Business succession planning allows for the assurance of an agreeable price for the departing partner’s share. Furthermore, succession planning allows for the ability to buy the departing member’s share quickly with no liquidity and no disruption in business.
Who needs business succession planning?
No business is too small to plan for its future. Whether you have partners, the business is run by your family, or you’re the sole owner, you need to plan for successors to take over the business.
If you have business partners, the right type of buy-sell agreement is one important item to consider. If you want to pass your business to your children or other family members, integrating your succession plan with your estate planning is critical. Or if you have no partners nor family members to step in, it becomes paramount to identify, train and empower a key person or people, and then negotiate the economics of a buy-out.
The major benefit of business succession planning is the fact that succession planning allows your business to survive perpetually and keep its longevity. Every company needs to be one step ahead of the game and plan for economical droughts or the incapacity, death or retirement of the business owner(s).
Business succession planning strategies
Successful business succession planning includes strategies to ensure that a successor is ready and able to continue your businesses’ existence following your departure. First you should establish current and future goals and objectives and identify successors.
One great strategy is to make sure your operating agreements are bulletproofed and dictate exactly what happens when an owner or member of the business exits. This way, there is no room for interpretation as to what happens to the business.
Another common strategy is to purchase life insurance for each of the owners, naming your business or yourself as a beneficiary. In that case, the proceeds of the insurance, in the event of a death, can go to purchasing their interest. This avoids any messy probate claims and auction, allowing the business to function uninterrupted.
Integrating your planning
Business succession planning is also known as estate planning for your business. However, business succession planning can mean nothing if you don’t protect your business. You can work a lifetime to build your business and accumulate your wealth, but if you don’t protect it, you will have nothing to pass on. You must think about how to best protect your assets while you are alive and after you pass on. A comprehensive plan will include an individual’s estate plan, business succession plan, asset protection, and tax planning.