Business Succession Planning
Effective business succession planning will protect your business in the event of your death, incapacity, or retirement. Creating a business succession plan is a way to safeguard the value of the business and ensure it is not negatively affected by any transitions that take place. Seeking guidance from an adept attorney with experience in business succession planning can help you address these matters and formulate a plan for the succession of your business.
Types of Business Succession Plans
Business succession planning entails determining what should happen to a business should the owner retire, die, become incapacitated, or otherwise be unable to conduct the affairs of the business. When creating your business succession plan, it is important to ask yourself some very hard questions:
- Who is most qualified and willing to succeed me if I am no longer able to run the business?
- How will any succession that takes place be funded?
- What is my business worth, and how is this determined?
- Is selling the business an option?
These are all difficult questions but will help you determine which of the two main types of business succession plans are right for your long-term goals.
Buy-Sell Agreement Planning
This an agreement made between an owner or owners of a business and future purchaser(s) of that business. A buy-sell agreement sets the terms of the transfer of the business upon the happening of a triggering event such as the owner’s death, incapacity, or retirement.
Retention planning happens when the owner of the business wishes for ownership to remain in the family. It is usually conducted in tandem with the owner’s personal estate plan.
Elements of a Successful Business Succession Plan
Depending upon your needs, and the type of plan you decide upon, your plan may include:
A Business Valuation: A valuation of your business should be conducted often and it should include the method used to determine the business value.
Durable Power of Attorney: In case of disability of the owner.
List of Potential Successors: A ranked list of anyone you consider to be a possible successor to you. Include why you chose these persons. It is also a good idea to formulate a training program for any future leaders of your business.
Details on Funding the Succession: Common methods include life insurance, seller’s note, or an internal fund.
Corporate Structure: Consider any changes that will need to be made to the corporate structure when the plan is implemented. Detail what these are and how they should occur.
Formalized Standard Operating Procedures (SOPs): This should include any procedures, handbooks, statements, checklists, protocols, etc., that are used in the operation of the business.