FAQs: Business Succession Planning
As a business owner, there’s no doubt that you have put your heart and soul into creating and growing your business.
But have you thought about how to pass it on when the time comes to retire or when life takes an unexpected turn?
It can often be challenging to anticipate what the future might hold, for both you and your business.
However, planning for business succession can ensure that your company continues to thrive, even after you're no longer at the helm.
Let’s delve a little deeper.
What is Business Succession Planning?
Business succession planning is the process of preparing for the successful transition of a business from one owner to the next.
It involves a consideration of a range of issues such as:
● An all-inclusive assessment of the business or organization's worth;
● Acknowledgment of potential owners or managers from employees, family, or external individuals;
● A structured approach to educate and equip future decision-makers with necessary skills;
● Establishment of a financial plan to support the chosen succession strategy; ● Well-defined protocols for executing the business succession plan at the opportune moment.
How does Business Succession Planning work?
When it comes to planning for the future of your business, two key approaches can be considered: retention planning and buy-sell agreements.
Retention planning involves your decision as the owner to keep the company or shares within the family after retirement or in the event of your passing.
In this case, it becomes crucial to select family members who will assume control of the business assets and effectively manage the company.
On the other hand, buy-sell agreements offer a contractual framework that outlines the transfer of the business under specific circumstances.
Common triggering events include retirement, disability, or unfortunate passing.
When such an event occurs, the parties mentioned in the buy-sell agreement have the right of first refusal.
This means they have the initial opportunity to buy out your shares or, alternatively, sell them to another interested party.
When Should Business Owners Start Planning For A Business Succession?
It's never too early to start planning for business succession.
A good rule of thumb is to start planning 5 to 10 years before you plan to exit the business.
This gives you ample time to train the successor(s), build a robust business structure, and ensure that your business's finances are stable.
Who Should Be Involved In The Succession Plan?
The main people involved in the business succession plan are the current owners, their family members, successors, legal and financial advisors, and other key stakeholders in the business.
Each of these parties plays a vital role in ensuring the successful transfer of ownership and management of your business.
As the current owners you should work with your advisors to identify the best successor(s) and train them to take over the business when you retire.
It's always best to consult an experienced attorney or financial planner to help create a tailored succession plan that meets your unique needs.
They can help answer any questions and guide you through the many steps of the business succession planning process.
Need assistance about a business succession plan? Contact our office today!
DISCLAIMER: The content contained herein is for general informational purposes only. These materials do not constitute legal or other professional advice. We do not accept any responsibility for any loss that may arise from reliance on this information. No reader should act or refrain from acting based on information contained in this article without seeking advice of counsel.