I’ve been hearing a lot about making business succession planning since I’ve moved to Asheville. Let’s talk about what it means to make a succession plan for your exit from your business, whether through retirement, death or disability.
First of all, succession planning is just that: an actual *plan* for what succeeds your exit from your business. Take some time, write down what you think would be a good outcome for your business after your exit. If you have partners you have to consider them and their needs. Leaving your share of the business to pass to your wife or children who may have no interest in running it is unfair to your partners, who now have to work extra hard to make up for your absence, and give away your share of the money they earned. Talk to your partners, talk to your family.
Second, a succession plan is just that: a plan.
Find some good advisors to guide you toward your exit goal: me for legal, a life or disability insurance person to get you funding for your goal, and an accountant to work on minimizing the tax consequences of your succession plan.
Third: plan (see a trend here?). If your business has partners or major investors, you’ll need a buyout agreement, one for yourself, and one to cover your partner’s eventual exit. A buyout agreement requires your surviving partners to purchase your share of the business. These are usually funded with life or disability insurance proceeds, although very successful businesses can fund a buyout with revenue too. This is a great way to monetize your share of a small business, that may not otherwise be easily transferable.
If you are a solo business owner, you’ll need to do some estate planning or a living will – who will get your ownership when you die? Who will take your role in the business if you become disabled? Wife, husband, children, etc. Is there a ready purchaser for your business that you can designate, such as a key employee? These can be difficult choices, but the cost of doing nothing is, as I’m sure you’ve seen, a family fighting amongst itself for shares of your business, while the business circles the drain.
Fourth: plan on telling people about your succession plan. Let everyone know what is to happen if you die or become disabled; give key people copies of your important planning documents. This shouldn’t be a secret until it’s too late. Get the hurt feelings, if any, out of the way now. Who knows, the person you designate to take over running your business may not want to do that, and there may be someone else available you haven’t thought of.
There’s obviously more to it than this, but this article should give you a start toward working on your succession planning. For legal help planning your exit, call me in Asheville at (312) 671-8453.