Business Succession Considerations
An owner’s primary goals in a succession plan are:
- To stabilize the business
- To facilitate the transfer of the business in accordance with the owner’s wishes
- Minimize eventual estate taxes and expenses
- Maximize the wealth passed on to the next generation within the family
Many business owners may resist facing succession issues or feel they can delay thinking about it. Most family businesses have unique characteristics. Envisioning the future under new leadership is daunting.
An owner who is accustomed to controlling and managing all aspects of the business may have difficulty “letting go.” An owner may have greater difficulty grooming a family member than an outsider for succession because of the overlap of family and business boundaries. Some families just don’t discuss money or inheritance issues because such discussions may be perceived as a lack of family trust.
What will happen if you leave the business?
- Assess risk to your business
- Examine available options
- Establish goals for business succession
Is there a clear business succession strategy in place?
- Develop a written succession plan
- Determine the value of each owner’s interest
- Explore what happens if an owner retires, becomes disabled or dies
Does your business have the resources to carry it through?
- Arrange funding for the business succession plan
- Allow transfer of ownership
How will the sale or transfer of a business affect your estate plan?
Planning for and managing business succession is critical to the continuation of a business; be it through transfer, sale or merger.
Having a business succession plan, as well as a means of funding the plan, are the keys to a successful transfer or exit strategy. Ongoing reviews and updating of the plan ensures that the business stays intact until succession occurs.
Having a fully funded buy-sell agreement in place as part of a Business Succession Plan can provide a tremendous boost to employee morale and productivity.
It reassures employees that the venture will continue even if the owner dies or becomes disabled. It can help eliminate much of the turmoil and uncertainty that is common in the succession of small businesses.
Buy-sell agreements can provide an effective way to transfer ownership of a closely held company back to the business or to other owners or key employees.
This strategy can be beneficial to provide for the family of the deceased or disabled owner and to ensure the continuation of the business for the remaining owners.
A well-drafted and properly funded buy-sell agreement can set a value for the business or designate a formula to use in determining the value.
It can also specify the funding vehicle to be used for the buyout. These measures reduce the amount of strain put on the business and the family of the deceased business owner.
- Provides a guaranteed market
- Can set a value on the business
- Reassures creditors, customers and employees