Should you have a business succession plan?
If you own a business, the answer is yes.
When you’re building and running a business, thoughts of selling it or passing it on to others are often far from your mind. However, that day will eventually arrive and, as in all business matters, the earlier you plan the more successful the transfer will be.
Business succession planning is really an extension of your personal estate planning but with a focus on the future operations of your business.
Planning for retirement, planning for your heirs and employees upon your death, and planning for the person who takes over the reins of your business are closely tied together. However, your planning objectives in each of these situations may be different.
What is a business succession plan?
A business succession plan determines how your business will be transferred to others and outlines the steps necessary to prepare for the transition.
The plan affects you, your family, employees, clients, suppliers, creditors and others. A good succession plan ensures that your wishes will be carried out if you should die suddenly or can no longer run your business due to illness or disabling injury. It can also help you ease into retirement or provide a retirement income.
There’s no way to guarantee your good health. However, you can take steps to prevent a death or disability from harming or even destroying your business by setting up a properly funded Buy-Sell Agreement.
You can’t guarantee the continued good health of your employees, but insurance on the lives of your company’s key people can help prevent an unexpected loss from financially harming or even destroying the business that you have built with the help of these valuable employees. Key Person Insurance is a vital part of your Business Succession plan.
Planning for unforeseen events
It is just not practical to undertake a succession plan for your business without considering the possibility of a disability or your early demise, either while you still own the business or when you are retired but still involved to some degree. Thinking about succession planning requires asking some tough questions.
- When I die, how will I divide my estate amongst my family in a way that is fair and equitable to all?
- Who will take over control of my business?
- What other assets do I have and who will receive them?
- How much control over the business do I want to retain when I retire?
- When will I release control completely?
- Where will the money come from to fund the purchase of my business and fund my retirement?
- How will my family retain their standard of living when I die or if I become disabled?
- How will I ensure my business continues to run smoothly?
Changes in life stages such as marriage, death, or divorce can all impact the business succession plan you create. Review your plan regularly and amend it for any changes in your situation or goals over time.