Developing a Transition Plan for Business Succession, Including Assets, Ownership & Control
Successful entrepreneurs are usually proactive and forward thinking when managing and growing their business. With such a sharp focus on running the business, however, owners often fail to consider and develop a plan for the transition of the business if they die or become disabled. We work closely with business owners to leverage the same skills that make them successful business owners and apply them in planning for the eventual transition of the business, whether as part of a multi-year planned transition process or in the event of a sudden or unanticipated event.
An effective business succession plan requires the owner to identify with and carefully consider the realities of the business and involvement of family members or key employees in the business. Included among the issues an owner is likely to address are:
- Should the business continue if the owner dies or is no longer able to manage the business? If the answer is no, is there a trusted employee or advisor who can assist in winding up or selling the business?
- What is the owner’s timeframe for the transition? This often depends on the cash flow and asset requirements of the owner and his or her spouse after leaving the business. As part of the estate planning process, we work closely with the owner to analyze the financial and tax implications of retiring, which in turn, can serve as the basis of the business transition plan.
- When and how does an owner select a successor from among several family members? There may be children of varying ages working in the business, all with differing levels of experience and skill. The owner may feel it is not appropriate to select a successor until younger children have an opportunity to prove themselves, but this may alienate older children or key employees who have worked for the business for many years.
- What impact will a buyout of the owner’s interest have on the cash flow of the business? Successors, whether family members or not, may be placed in the difficult position of taking over the business while simultaneously struggling to invest in new products or endeavors because the business is paying out significant amounts to the former owner. We work closely with the owner, the business’ accountants and other professionals to analyze and structure a transition plan that contemplates the needs of the owner and the business.
- Are there strategies to blunt the impact of an owner’s sudden death? It may be appropriate for the business or a successor to purchase life insurance on the owner, using the proceeds from a policy to hire someone to run the business, pay down business debt, or purchase the owner’s interest in the business from his or her beneficiaries.