During succession planning, business owners should consider worst-case scenarios, timing issues, finances, legal advice and different succession options.
Succession planning can be critical to the survival of a business or the financial well being of its owners. Despite this, many small business owners lack succession plans that designate what will happen to their businesses in case of owner death, disability, retirement or other similarly significant event like divorce or bankruptcy. It is critical for owners in Fort Collins to protect themselves and their businesses by creating plans to address all of the following important matters.
Options for succession
First, owners should consider which form of succession best suits their financial and personal goals. Three options that allow a business to continue operating in case of a triggering event are:
- Passing on ownership to one or more relatives
- Allowing one or more partners, employees or other invested parties to buy the business
- Selling the business to a third party
Owners also have the option of closing and liquidating the business. This may be fitting if buyers are not available or if the business possesses substantial inventory.
Although many business owners plan to closely oversee the succession process, it is critical to make a plan that addresses the possibility of the owner's disablement or unexpected death. A clear plan can keep a business operating smoothly and head off disputes between heirs or potential successors. This can help protect the worth of the business and unwanted outcomes, such as liquidation.
Business owners should also take stock of their insurance policies and retirement savings during business succession planning. For example, owners should assess whether their disability and life insurance policies can provide for their families and address any succession-related issues. Owners should also determine whether they need a certain amount of income from a buyout to help finance retirement.
Business owners should begin succession planning early because the process may require significant amounts of time, especially if it involves finding an appropriate buyer or training a successor. However, even if succession planning has been on the back burner, it is probably not too late to put together a comprehensive plan going forward.
A professional's advice
Finally, business owners should consult with qualified professionals before finalizing succession plans. Especially if a plan involves a buyout, it is imperative for owners to seek the opinions of accountants and appraisers trained to place proper value on the particular type of business. Regardless of the nature of the plan, owners also should confirm that it addresses most contingencies and that it will hold up legally.
To this end, business owners can benefit from seeking the advice and participation of an attorney who has experience in succession planning. A lawyer can identify any drawbacks to an existing plan and create a final plan that fully protects a person's interests and meets his or her objectives.
Usually, in order to carry out the succession plan when there is more than a single owner, legal counsel will recommend and prepare a written buy-sell agreement that provides ahead of time what steps are to be taken in case of the withdrawal of an owner, for whatever reason. The terms of a buy-sell agreement can vary greatly depending on the circumstances. For example, it could restrict what an owner may do with his or her share of the business such as requiring that the other owners be allowed to purchase the interest before it is offered for sale to the public.
With offices in Fort Collins, Estes Park and Windsor, Colorado, the attorneys of Wick & Trautwein, LLC, provide comprehensive business succession planning services to clients in northern Colorado and southern Wyoming.