Business Succession Planning

Business Succession Planning

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:

  • Co-owner — Selling your shares or ownership interests to a co-owner(s)
  • Heir — Passing ownership interests to a family member.
  • Key Employee — Selling your business to a key employee.
  • Outside Party — Selling your business to an entrepreneur outside your organization.
  • Company — For a business with multiple owners, you can sell your ownership interests back to the company, then distribute to the remaining owners.

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.

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