Business succession planning is a series of logistical and financial decisions about who will take over your business upon retirement, death or disability. To write a succession plan, the first step is to identify the ideal successor to take over the business, then determine the best-selling arrangement. This usually involves a buy-sell agreement, secured with a life insurance policy or loan.
There are 5 common ways to transfer ownership of your business:
Why It’s Important to Write a Succession Plan
Succession plans are commonly associated with retirement, although they also serve an important function earlier in the business lifespan: If anything unexpected happens to you or a co-owner, a succession plan can help reduce headaches, drama and monetary loss as your business grapples with a transition.
A succession plans makes it clear who will take over the business, reducing any potential disputes between parties. If a purchase is involved, the sale price and purchase terms are also clearly outlined, relieving some of the stress for the departing owner’s family.
In other words, a well-crafted succession plan aims to benefit everybody— the departing owner, their family, the business and the successor.