As a small business owner you may question whether you can survive your business. Perhaps a more important question is whether your business can survive you. What will happen to your business if you are unable to run it?Developing a business succession plan now will help protect your investment and ensure for future stability of your business.
Steps to Business Succession
1.Surround yourself with a good team.
Proper succession planning involves a number of professional disciplines. Make sure your attorney, accountant, insurance agent and other key planning professionals communicate well with you and each other. Find professionals who understand you and your goals.
2.Obtain Corporate status
Being a corporation or limited liability company will not only provide for protection of your personal assets, but also provide for the “perpetual existence” of your business.
3.Know the value of your business.
Because succession planning will involve selling your ownership interest to another or passing it to your heirs, it will be important to know how much your business is worth. Knowing the value of your ownership interest will better pinpoint how much funding will be required for a buy-out or how to best minimize estate taxes.
4.Pick your successor and document your policies and procedures.
Identifying and training your successor as to the fine points of your business may take many years. Thus, pay close attention to key employees or family members who demonstrate an aptitude for success. Begin mentoring as soon as possible. Along the way, be sure to properly document your company’s policies and procedures.
5.Have a “Buy-Sell” agreement in place.
A “Buy-Sell” agreement prevents the owner of a business from selling or passing on his or her interest in the business to an outsider without the consent of other owners. This agreement can take the form of a “Cross-Purchase” agreement (a withdrawing owner agrees to sell his/her interest to other owners); an “Entity Purchase” (a withdrawing owner agrees to sell to the entity); or a combination of a “Cross Purchase” and “Entity Purchase.” The “Buy-Sell” is typically triggered by retirement, divorce, death or disability.Don’t forget to have your personal estate planner on board during this critical step.
6.Adequately fund your “Buy-Sell.”
Although your “Buy-Sell” can help make sure your business will stay with fellow owners or your family in the event of a triggering event, you also need to make sure adequate funds are available to fulfill the obligations of the Buy-Sell. Life and Disability insurance can help meet funding needs.
7.Communicate your plan.
Eliminate surprise by sharing the general details about your plan with those affected by it. By doing so, you will allow for questions and concerns to be addressed.
Following these seven steps will help ensure for the orderly transfer of your business. Don’t forget to review your plan periodically with your professional advisors to address changes in your life.
