Business Succession Planning

Business owners must wear many hats; marketing and sales, production, client satisfaction, tax payments, etc. The list is endless. One aspect that almost never gets addressed, until it is too late is Business Succession Planning.

What is Business Succession Planning?

Very simply it is a written plan for what happens to your business when you pass away, It is very much akin to the Estate Plan that you hopefully created for your assets to pass to your family (if you have not then please give us a call!!).  There are also certain triggering events that could have an impact with a proper Business Succession Plan in place. Those events could be an outside offer to purchase the business, one of the partners deciding to leave the business, or even a divorce of one of the partners and the ex spouse gets the partner’s share of the company!! That could lead to a very dramatic situation if not properly planned.

Elements of the well drafted Business Succession Plan

There are several key elements of a well drafted Business Succession Plan.  The top three most critical are naming successors, method for business valuation, and finally proper funding for the business succession plan.

Obviously, the business needs to get passed to someone. That could be a family member such as a son or daughter, or even sold a partner or to a third party. That needs to be spelled out explicitly in the Business Succession Plan. The second step is to arrive at a fair valuation of the business. We actually build in the formula into our Business Succession Plans so as to minimize future fights between the parties. Lastly, a funding mechanism such as life insurance needs to be in place so that the “buyer”, if a family member or a partner, has the funds available to buy out the business. This aspect is often overlooked by the business owners. Don’t fall into this trap.