Business Succession Planning
Ensure the Longevity of Your Business with Succession Planning
Business succession planning is, in short, planning designed to ensure that a business can be continued in various business situations.
Succession planning can help pass the business to family members, employees, or third parties as smoothly as possible. Business succession planning can also help ensure that an owner’s unexpected disability, divorce, or death does not destroy the business and leave the owner and his or her family in a tough position, or that a split between the business’ owners does not cause the business to dissolve.
This type of planning often focuses on developing a “buy-sell” or continuation agreement between the business and its owner(s), along with obtaining appropriate insurance. In addition, other, more-comprehensive planning techniques can be used.
The benefits of a well-crafted business succession plan can include:
- Providing for the smooth resolution of any disputes between owners, especially if they wish to stop working together
- Maximizing the value of the business, which can be especially helpful if the owners intend to eventually sell the business and retire or move on to new ventures
- Helping to ensure that owners are able to retire with adequate income and savings
- Helping ensure that adequate liquid assets will be available when needed to provide for the owner and his or her family, continue the business’ operations, and pay any debts and estate taxes upon an owner’s disability or death
Where a family-owned business is involved, business succession planning can be more difficult, since family relationship issues are added to the normal business and tax concerns. If desired, planning can be focused on having the business structured to enable family involvement and control for generations.
We encourage you to begin planning for the future of your business as soon as possible, and to revisit your plan often so that you are able to update it as needed to deal with any changes in your personal or business situations.
Begun early enough, business succession planning can also help ensure that the owner is able to leave the business on the owner’s own terms and the owner’s own schedule, while receiving maximum benefit and passing the business to the owner’s selected successor(s). Finally, good business succession planning can help ensure that, in the event of the owner’s death or disability, adequate liquid assets are available to provide for the owner and his or her family, to continue the business’ operations, and to pay any estate taxes.
Business succession planning should be accompanied by estate planning which complements and works with the buy-sell agreement and other documents which the owners decide to use. Even a business which has only one owner should still have a business succession plan in place.
The assistance of an experienced estate attorney can help business owners consider both the business and tax issues and any family dynamics involved in business succession planning. Besides your attorney, it is often helpful to involve your CPA, financial and insurance advisors, and in some cases, specialized family business consultants, in your business planning.
Finally, you may want to read How to Run Your Business So You Can Leave It In Style, by John H. Brown. This is a book which discusses business planning issues in easily understandable terms, rather than in legal jargon.