Business Succession Plans: An Important Part of Estate Planning
The sad fact is, most small businesses do not survive the transition to the second generation when the first generation passes. Small business owners should include business succession plans in their overall estate plan, or the business will become part of the statistical 80% that do not make it.
Crafting a business succession plan as a part of a holistic estate plan can significantly increase the odds of survival. Although each business succession plan is unique, there are some common challenges that can be addressed in planning...
Strategically, the purpose of business succession planning is to develop guidance that considers the demise of the owners and/or their inability to effectively function in the business. When milestones are reached, somebody must have the authority and ability to lead if the business is expected to continue. Even if the owners don't care whether the business continues or not, a great deal of time and resources have been invested that they probably don't want to let just vaporize.
If you are a small business owner, here are some great opening questions to that will get the juices flowing on a business succession planning document:
- Is your current business entity type still the best one?
- Who will lead the business if you are unable to?
- Who will lead the business after you pass?
- What milestone will trigger the transition of day to day operations?
- Will your successor have an ownership interest in the business?
- For partnerships, do you want your partner(s) to buy you out when you die?
- If so, how will you value the buy out?
- Who or what entity will receive the funds?
- What are the tax implications of everything you wish regarding the plan?
This is not only about the business, but about estate planning, and hence about the wishes of those who are passing on. To ensure that wishes with respect to the business owners are carried out, those wishes need to be in writing. In this case, in the form of a business succession plan.
This article is not intended to provide legal advice. For legal advice regarding any of the information in this post, please use the form to the right or contact us by phone: