Building a successful business takes perseverance, a little bit of luck, a tremendous amount of time – and a lot of hard work. Most business owners wouldn’t have it any other way. However, there comes a time for all business owners when they no longer want to – or can – remain at the helm. For some, leaving behind a business that took decades to build might occur after years of deliberation, or upon the realization that it is time to hand over the reins to the next generation in a family business. Others might not leave their business behind until a sudden change in health or family circumstances makes their continued involvement in the business impossible. Some business owners won’t leave the business until they die.
The way for a business owner to make sure that the business will continue to thrive long after they’ve moved on to sipping margaritas on the beach – or to sipping margaritas on that big beach in the sky – is to have a succession plan in place. A business succession plan is a plan for how the transfer of ownership and management of a business will occur. A business succession plan can provide continuity for the business’s clients or customers who may depend upon it, and it can also provide a mechanism for the business owner (or their heirs) to receive payment for the value that has accrued in the business.
A business succession plan is built on the idea that the business is bigger than its founder and can thrive on its own. It may be helpful to think of a business succession plan as a blueprint how a business owner would like the business to be handled when they are no longer in the picture. Developing a business succession plan requires taking the time to consider who will take on the business owner’s role in the enterprise and how that transition will occur. Who will be responsible for the daily operations of the business? Who will assume ownership of the business assets? How will the owner’s estate be compensated for the value of the business?
A business succession plan may be implemented via a combination of provisions in the business owner’s estate planning documents, Operating Agreement (for an LLC), Shareholder Agreement (for a S-Corp), and Buy-Sell Agreements or other standalone agreements among the owners of a business. In the posts in this blog series, I will discuss business succession planning for businesses with multiple owners, businesses with just one owner, and special considerations in succession planning for family businesses.
Photo by: Nicole De Khors