When you invest a significant amount of time, energy, and money into your business, you want to make sure that the values you created will be upheld when you’re gone. Many people don’t want to think about succession planning, but this is not the route you should take. By doing succession planning for your business, you ensure that it’s in the right hands when you retire, sell it, or pass away.
Starting the process can be daunting, but you’ll be grateful once you have a plan in place. Succession planning may seem like a process you can avoid, but it will sneak up on you before you know it. If you are a business owner, you should start succession planning.
Many business owners don’t have a succession plan. A study conducted by Wilmington Trust found that 58% of small business owners said they had no succession plan in place. There is no “right time” and it’s never too late to start succession planning. However, the earlier you start, the less you’ll have to worry about at a later date.
When creating a business succession plan, deciding what you want to do with your business when you’re no longer around to run things is the first step. You have a few options when developing your business succession plan. You could choose to:
What you plan to do with your business determines the next steps in your business succession plan. Unless you choose to liquidate and close your business, you will need to select a successor and set up a buy-sell agreement if you are not passing the company to a family member.
Choosing who will run your business can be challenging to decide. Some people may feel entitled to the position, while others are more deserving. Who will run your business is an important question to ask when succession planning, especially if you do not plan to sell your business.
If you plan to pass the business down to a family member, you should have a conversation with them beforehand. When transferring a business between family members, much financial planning is needed. If you’re retiring, you’ll need to talk about the income amount you’ll need to maintain the standard of living you desire.
When passing the business to family members, you should discuss who will take over or if multiple people will take over. This discussion is integral to the buy-sell agreement.
If you have business partners and plan to pass the business on to them, succession planning may look slightly different. If you plan on selling your business, you’ll need to have a buy-sell agreement in place. A buy and sell agreement is a legally binding agreement that outlines how a partner’s shares will be reassigned in the case of death or if they leave the business.
When succession planning for your business, you should evaluate how much it’s worth, especially if you plan to sell. To get an appraisal for your business, you’ll need a CPA. This kind of financial planning service is available with the Rigby Financial Group. Knowing what your business is worth will help you along in the succession planning process. Getting a precise quote minimizes the chance that your business will be sold undervalue if something happens unexpectedly and ensures a smooth transition.
After a CPA evaluates what your business is worth, life insurance will need to be taken out on all parties with ownership of the company. A life insurance policy provides the funding necessary to buy out the deceased owner’s share of the business. Without a policy, business partners may be forced to liquidate if heirs are not interested in running the business. The primary insurance policy that funds buy-sell agreements is Whole life insurance. If premiums are paid on time, the policy will grow at the correct pace to fulfill the agreement.
If you don’t clearly outline who will be taking over in the buy-sell agreement, family members may unintentionally become the owners of your business.
There are several financial aspects to succession planning that can be hard to understand and navigate alone. Though it is never too late to start succession planning, a CPA can help guide you into the process earlier. A CPA can help you understand the economic implications of your succession plan.
Suppose you choose to liquidate your business after you retire, or in the case of an untimely event, there are many things to consider. When determining the need for liquidity, the business owner needs to consider other non-cash benefits that their business receives, such as health insurance and company cars. A CPA can help you with this and help you minimize taxes when the time comes to transfer.
It’s important to note that every situation is different, and no one can have a cookie-cutter business succession plan.
There is great importance in succession planning. If you believe that it’s unnecessary to have a succession plan, consider the businesses you see in the news when the CEO dies. For example, the singer-songwriter Prince died without a will and many people emerged claiming to be his sibling, a long-lost child, and even his wife. Months of legal drama ensued before his siblings were declared the heirs to his estate. With a succession plan, you can avoid unnecessary confrontations between business partners or family members.
Rigby Financial Group offers you the support you need to build a successful business succession plan. We will help you create a plan so that you can pass down your business with ease. It’s never too late to start your succession planning, but the earlier you begin, the more well-off your business will be. When you choose to work with the Rigby Financial Group, you’ll get a carefully crafted plan catered to your business. In addition to a business succession plan, you should also set up a succession plan for yourself. Individual succession planning is just as crucial as business succession planning, and Rigby can help you with this as well.
Are you looking to start your succession planning today? Contact us, and we can help you get started.