If you have an ownership interest in a closely-held business, you know how important leadership is to the success of that business. Are you prepared for a smooth transition when that leadership changes?
A sudden health crisis could cause a leader to step away from a management role. Or the success of the business could encourage a partner to retire early. With the right business succession plan, your company can continue to function without missing a beat.
What is Business Succession Planning?
Business succession planning involves creating a contingency or business continuity plan that identifies key employees or advisors to keep the business going when one or more leaders are no longer willing or able to continue in their roles.
With a well-prepared succession plan, the business can not only survive the loss of an owner but the owner's family or other partners will be prepared to continue growing the enterprise or harvest its value.
As part of the plan, business owners often use key employee insurance. Key employee disability and life policies pay the business when the owner or key leader is disabled or passes away. The insurance funds are used to fill the gap created by the owner's absence, whether to hire a capable business manager to run the business or to buy out a deceased owner's interest in the business.
Other components of a business succession plan often specify how interests will be valued and transferred if one partner or family member wants to buy out the interests of others. We create business succession plans that fit the unique needs of the business and its owners.
The point is to protect the business as an asset. Unfortunately, too many overlook the vital role a business owner plays in ensuring that a business survives. The owner typically functions in a business the way our hearts function in our bodies. Generally speaking, those that protect their hearts live longer than those that don't.
Why You Need to Make Business Succession Planning a Priority
With business owners bogged down with the day-to-day work required to succeed with core operations, they generally give little or no consideration to an “exit strategy” for leadership. This failure to plan can result in a missed opportunity for transferring the business at maximum value with minimum transfer tax costs.
Family businesses–which typically hold most of a family's wealth and legacy–encounter this issue quite often. Sometimes owners avoid planning because they want to retain control of their business for life, or they want to avoid family conflict that might occur if family members do not receive what they feel entitled to. All of this can be taken into account when we create a business succession plan tailored to your goals.
Learn More About How Business Succession Planning Could Secure the Future of Your Business
In the Law Offices of Charles R. Frazier, we help business owners and their families protect the value of their business assets in numerous ways. Without a plan for business succession, however, many other protection efforts can be useless. Talk to us today to find out how we can coordinate plans to protect your business now and in the future.