Owning a business can be an all-encompassing task. When you are focused on the day-to-day management and administration of your business, it can be hard to think long-term about a succession plan. However, planning for the future of your business after your passing is crucial.
Why Create a Succession Plan?
Succession planning is important for you, your heirs, your company, your employees, and your customers. Creating a business succession plan has the following benefits:
- Control: By creating a business succession plan, you maintain control over how and under whom the business continues to operate in your absence.
- Smooth transition: By creating a succession plan in advance, your company and customers will experience a much smoother transition after your passing. This can be especially important for your customers who depend on your products or services.
- Maximize value: Through succession planning, you can evaluate your options for your business’s future and choose the option that provides the most value for you and your heirs. Depending on which option is best for your business, you could sell the company to a partner or a third party or liquidate the company.
- Protect your family: In a succession plan, you can protect your family by providing financial stability and security after your passing. Depending on how involved they wish to be, you can also create roles for your family members to remain key players in the future of the business.
How to Choose a Successor
Choosing a successor for your business can be a difficult decision. Often, business owners hope that their spouse, a child, or multiple children can continue running it after their passing. Unfortunately, not all family members are equipped to or interested in taking on that responsibility. Before deciding to leave your business to a family member, have an open and honest conversation with that individual about their interest in and ability to operate the business. If you have multiple family members who are interested in the business, carefully consider how ownership will be divided and how decisions will be made.
Some business owners have a non-familial partner or a key employee who is best equipped to take over the business after them. With your business partner, you can create an agreement called a buy-sell agreement that dictates how and to whom your interest in the business would transfer in the event of your passing. For example, a buy-sell agreement could stipulate that your share of the business would be sold to your partner upon your death.
Whoever the successor may be, it is important that you inform them in advance of this big responsibility. This will allow them to prepare for this important role.
How to Document Your Business Succession Plan
Your business succession plan should be documented as part of your estate plan, including the name of your successor or successors. An estate planning attorney with experience advising business owners can help you create a business succession plan and incorporate it into your estate plan.
The bottom line is that no matter how you wish to proceed: don’t delay. Tomorrow is not promised and it’s important to make your wishes known. If you need assistance getting started, we are here to guide you through all of your options.
This article is a service of Miller & Miller Law Group.