Business Succession Planning: allowing business owners to reach their personal and business goals.
At some point, ever business owner will exit his or her business. It could be in accordance with his/her desires or it could be be chaos and lead to the death of the business. Business Succession Planning is the process of developing a plan on your terms for the successful transition of the business.
Benefits of Succession Planning:
- Achieve peace of mind
- Control your outcome
- Protect/reward key employees
- Preserve your legacy
- Grow business value
- Transition the business in the way you choose
Business Succession Planning Covers:
- Ownership Succession: How will the ownership interests of the company be transferred in the most efficient, cost-effective, tax-effective manner?
- Leadership Succession: Who are the leaders of today as well as the leaders of tomorrow for the company? What will be the key roles, responsibilities and authority of those leaders?
- A Contingency/Emergency Plan: Every business owner must have a plan in place in case the unforeseen happens.
Questions & Answers
Q: Is Succession Planning the same as Exit Planning?
A: Although a succession plan includes Ownership succession, Leadership succession, and an emergency plan, it is only one piece of an Exit Plan. The Exit Planning process is the comprehensive analysis of all issues that are important to a business owner, including the value of the business, key employees, position in the market, personal resources, business resources, and creating a proactive plan for converting the business into cash to fund retirement and other needs for the owner.
Q: What causes succession planning to fail?
A: Succession planning fails for a number of reasons. It may be a parent’s flawed assumptions. It may be the failure of the younger generation to differentiate ownership from management. It may simply be poor communication between generations. Often, however, the real cause of failure is a lack of competent advisors who have experience with the multitude of complex issues involved in succession planning.
Q: What legal issues need to be addressed?
A: There are an abundance of legal issues to be addressed in even the most basic succession plan. Generally, the structure of control of the company needs to be addressed. In addition, issues regarding wages, dividends and other compensation need to be spelled out. Often, retiring owners are provided tax-beneficial deferred compensation plans. Whether to structure the transfer as a gift or a sale, and the tax effects of each, must also be addressed. Ultimately, the legal issues are often as varied and complex as the family business itself.
Q: When should I start thinking about succession issues?
A: Ideally, you should begin thinking about succession planning the day you start the business. If that has not happened, you would ideally like to begin planning two or three years before the older generation plans to step down. While not recommended, even if your horizon is less than a year, significant steps can be taken to effectively structure the transition and to significantly reduce the tax burden. In any case, now is the time to call a knowledgeable business attorney to begin the planning process.