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Keep Your Business Going With Succession Planning
4 min read
Succession planning makes retirements comfortable and businesses happy.
It’s tough to walk away from anything you build from the ground up. But don’t let nostalgia stop you from sipping a tropical drink on a beach. Retirement sounds a little bit better now, doesn’t it?
The show must go on, even if you’re not there. A smart succession plan offers a back-up strategy for you, your employees, and your family. Find out how to keep your business going after you're gone.
What Is Succession Planning?
Worst-case scenarios are a huge downer, but your post-retirement needs some direction. Plus, your business needs to know what to do if an accident or illness leaves you unable to work (or worse).
Succession planning puts the power in your hands. It helps you find future leaders or business owners while giving you back-up for emergencies.
Succession planning can help you:
- Retire in comfort
- Keep operations going through accidents, illnesses, and deaths
- Prevent fights over ownership
Succession planning could involve your family, too. That depends on what role they play in your business and whether you want to pass ownership on to them.
If you own a bigger business, consider an in-depth succession strategy for grooming managers. This could involve ongoing courses and tests. The goal is to have leaders ready to go at all times.
Who Are the Next Owners?
Few people know your business like you do. We can’t tell you exactly what to do with it after you retire.
We do have some suggestions, though.
You can transfer ownership by selling the business to:
- Your business partners or co-owners
- An independent buyer
- A trusted employee
You can pass the business to your family, as well. If you’re a sole owner, you could liquidate equipment and property for money, too.
No matter what you decide, document your plan and work with an attorney. You don’t want legal snags to leave everyone waiting.
How Much Is Your Business Worth?
You should know what you’re leaving for family, employees, or co-owners. You can’t do that without a business valuation.
Don’t figure this out by yourself. Sentimental attachments could lead you to overvalue your business.
Thankfully, it’s easy to find a professional appraiser through the American Society of Appraisers (ASA).
There's a lot that goes into your business's value, including:
- Market value
- Earning value
- Supplier relationships
Gather All the Documents
Round up these documents and store them in a secure place:
- Business valuation
- Tax returns
- Inventory records
- Financial statements
It’s good to have all of this ready to go, even when you sell to co-owners.
How a Buy-Sell Agreement Works
A buy-sell agreement could be the difference between chaos and a smooth ownership change.
Pekin Life Insurance Company makes it easy to fund a buy-sell agreement with life insurance, too.
Let’s say your business has multiple owners. In a buy-sell agreement, you would all buy life insurance policies on each other. When an owner passes away, the remaining owners would use the death benefit to buy the deceased owner’s share of the business.
You could also pass the business on to your family with a buy-sell agreement.
Here are some advantages of using this arrangement:
- Guarantees continuation of the business
- Locks a buyer (or buyers) into place
- Death benefit is paid income tax-free to the beneficiary
- Cash value build-up can be borrowed for emergencies
- Eliminates possible disagreements among business partners
A Buy-Sell Agreement Example
Jessica and her mom, Patty, co-own the Roast 'N’ Toast Bistro. It’s a nice coffee shop with out-of-this-world drinks and pastries.
Patty is debt-free with no mortgage or car payment. Jessica has federal student loans to pay, but this debt would be canceled and forgiven if she passed away.
Jessica took out a small business start-up loan, too. If something happens to Jessica, Patty will have to pay off the loan because she cosigned for it.
Jessica and Patty should think about final expenses, too, as the average funeral costs between $7,000 and $10,000. The mom-daughter duo are perfect candidates for a buy-sell agreement funded by life insurance.
Everyone wins with succession planning. Keep the victories coming with help from Mayfield Insurance. They’ll help you put together an in-depth business coverage plan.