Ensure the Longevity of Your Business with Succession Planning
Business succession planning can help pass your business to family members, employees, or third parties in an orderly fashion and in the most tax efficient way. Succession planning can also help ensure that an owner’s unexpected disability, divorce, or death (or even a planned retirement) does not adversely impact the business and/or leave the owner(s) and his or her family in a tough financial or emotional positions. Where two or more business’ owners are involved, it is imperative that one of the owner's unexpected disability or death or business divorce does not cause the business to dissolve.
A well-crafted business succession plan can provide for the smooth resolution of any disputes between owners, especially if they wish to stop working together. Just as in marriages, if owners agree on mutually agreeable terms with things are going well, they will be more likely to split amicably. This can further maximize the value of the business, which can be especially helpful if the owners intend to eventually sell the business and retire or move on to new ventures.
Of course, closely-held business are often times not just about the owner. They tend to be family affairs and more often than not the only source of income for the owner and his or her family. So it is important to establish a plan before the need arises to help ensure that the owners are able to retire with adequate income and savings, and that adequate liquid assets will be available when needed to provide for the owner and his or her family, continue the business’ operations, and pay any debts and estate taxes upon an owner’s disability or death.
Moreover, since family dynamics, competing personalities and other family relationships add a layer of complication to the normal business and tax concerns. We encourage you to begin planning for the future of your business as soon as possible, and to revisit your plan often so that you are able to update it as needed to deal with any changes in your personal or business situations.
Begun early enough, business succession planning can also help ensure that the owner is able to leave the business on the owner’s own terms and the owner’s own schedule, while receiving maximum benefit and passing the business to the owner’s selected successor(s). Finally, good business succession planning can help ensure that, in the event of the owner’s death or disability, adequate liquid assets are available to provide for the owner and his or her family, to continue the business’ operations, and to pay any estate taxes.
Business succession planning should be accompanied by estate planning which complements and works with the buy-sell agreement and other documents which the owners decide to use. Even a business which has only one owner should still have a business succession plan in place.