Business Succession Planning

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Business Succession Planning

Business Succession Planning Checklist 

Your business is doing well, and you are proud of your work. However, it would be best if you were ready for every situation as a smart entrepreneur. That includes coming up with a business succession plan. This document refers to what happens in disability, retirement, or death with the company. Keep reading to learn more about designing this plan!

What Is Succession Planning?

A business owner leaves a succession plan behind if they suddenly leave the company. It contains directions on what to do with the business.

Here is what a succession plan includes:

  • Who gets the company ownership? These are details about successors or company sales.
  • A timeline to stick to about the succession: if the former owner wants to stick to particular dates, add them to the plan.
  • Company valuation. You should update this section regularly based on your business movements.
  • Formalized procedures. If there are employee guides, document templates, and other formalized procedures, include them in the plan.

Get a Business Valuation

Learning about the actual value of your business can be important when designing a succession plan. Hire a CPA (certified public accountant) expert in conducting appraisals. You can get a report or talk to a professional about the company’s values and important things to consider. Knowing its worth is imperative if you want to sell the business in the succession plan.

Address Taxation Implications

Don’t forget the issue of taxes in succession planning. Talk to an estate planning attorney because professionals cover any potential taxation implications. Once you know the details, you can choose the most suitable succession method. Your business plan can include a section explaining what taxes they’ll need to pay the future owner. It can help them settle in easier once they take over the business.

Choose Your Business Successor

The crucial part of succession planning is to pick who will take charge of your company. Here are the usual options entrepreneurs choose for their successors.

Passing Your Business onto an Heir

Has your child been working by your side for years? Is your spouse active in the company? Family members are a frequent option for a successor. Your task is to ensure the transition goes smoothly. That’s why you must be clear about the desired heirs and the leadership structures. 

If you want multiple family members to take over, add clear instructions about the roles they should have. Adding a buy-sell agreement might allow those heirs with an active part in the business to acquire shares from those who don’t want to participate in the company’s day-to-day running. Make sure to mention each heir in the succession plan. Be as clear as you can about their tasks to avoid confusion.

Selling Your Business to an Outside Party

Do you have an outside party interested in acquiring your business? Your succession plan can include an option to sell the company to them. Including a recent business, valuation is vital to understanding its worth better.

It’s easier to sell to outside parties for some businesses. The buyer might want to rebrand, mainly if the company contains your name. That could lead to reducing the price. It helps to ensure the business runs smoothly and shows that the buyer won’t have much trouble during the transition. 

Selling Your Shares Back to the Company

This is convenient if multiple people own the company. You can come up with a stock redemption or entity purchase plan. It involves the company purchasing life insurance for each owner. Life insurance helps other owners buy their shares if one passes away. Contact a lawyer to discuss the best agreement type for your company.

Get Life Insurance

Life insurance is a smart investment for business owners. If their death occurs, this plan will help lower many costs involved with the succession process. Life insurance isn’t inexpensive and can help secure a smooth transition if the owner dies. You have different life policy options available. Discuss them with an insurance professional to find a deal that best suits you.

Maintain All Documents

Once a business succession plan is ready, storing all relevant files is important. These are the documents to include:

  • Legal Will
  • Power of attorney
  • Details about leases, property titles, rental deals, and mortgages
  • Business valuation, financial and tax records for the last several years
  • List of professionals to contact during the process

Keep this information in a secure place and one that will be easily accessible.

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