Business owners have generally made many sacrifices, taken risks and have worked hard for many years while building their business. It is important for business owners to think about how create a Business Succession Plan that will create harmony, wealth and value for their family.
The best time to start thinking about Business Succession Planning is when it is not needed. Planning in advance, when there is no looming crisis, will produce the best result. Many business owners never get around to Business Succession Planning and when they die, become disabled, or want to retire, the business closes and is sold for pennies on the dollar.
How do smart business owners approach Business Succession Planning? Here are some general steps to think about.
1. Define Family Goals: How does selling your business fit in with your overall estate planning and retirement goals? Do you have children interested or capable of taking over the business? Is your spouse involved in the business?
2. Assess Business Dynamics: Would your business continue to function if you weren’t around to run it? Do you have partners, other shareholders or key employees that might want to purchase your business? Does your existing business documentation give your business partners the right to buy your share of the business when you die or become disabled? Will your estate be properly compensated in a buyout situation?
3. Communicate with Successors: After thinking through your family situation and your business dynamics, the next step is to communicate with your potential successors – whether they are your family, your business partners, or key employees. For family-owned businesses, one key mistake is to assume your children want to take over the business. Another mistake is to treat all children equally within the business. If business partners will be buying you out – how will the buyout be funded? Hashing through these issues may take multiple meetings – but they are worth it in the long run.
4. Create the Transition Plan: Creating a successful Business Succession Plan requires the correct language in your estate planning documents and business formation documents. Sometimes separate stand-alone agreements are needed between existing partners of a business as well. The simplicity and/or complexity of these documents are different for each situation. Sometimes language in a will is all that that is needed. Other times sophisticated trusts and additional business agreements are needed.
By clearly defining your family goals, assessing your business dynamics and communicating with your potential successors, you will be sure to produce the highest quality Business Succession Plan that keeps harmony and wealth within your family and maintain value for your business.
This article is a service of Attorney Chad A. Ritchie and the Ritchie Law Office, Ltd. Click Here or call (309) 662-7000 to learn more about what it’s like to meet with the Ritchie Law Office, Ltd. for your initial estate planning meeting. We call this initial Estate Planning meeting a “Ritchie Legacy Planning Session”.
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