A Blueprint for Continued Success
As a business owner, how much planning goes into taking a week’s vacation? Leaving your business, even for a short period of time, takes some planning. Unfortunately, many business owners plan for their vacations, but not for the future of their business.
Business succession involves creating a plan for who will take over your business in the event of your retirement, death, or disability. A successor could be a person inside the company – maybe a key manager, employee, or even a family member. The successor may be an outside person or entity. Naming a successor reduces the possibility of a dispute in the future. In addition to selecting who to transfer ownership to, business owners need to train the new owner on how to run the business.
Business succession is more than simply choosing the successor – it’s about ensuring you’re ready to exit your business should an opportunity present itself. With that in mind, it’s essential to a smooth transition to ensure financial documents are consolidated. This includes company valuation data, inventory documentation, tax returns, and up-to-date financial records. Potential buyers and lenders will want to see how the business has performed historically before proceeding with a deal.
The business should have a buy-sell agreement in place. This agreement addresses what will occur in the business should the owner pass away, become ill, or retire. It provides a guideline to determine the value of the company, the value of each owner’s share, and rules on who can or cannot be a buyer. The agreement also reduces the risk of conflicts between family members or partners who may put their interests ahead of the company’s.
Proper succession planning calls for careful consideration and preparation. While it may be difficult to entertain the thought of exiting the business, unexpected circumstances can force an early exit. Whether someone is nearing retirement age or just beginning, business owners should take time now to build a succession plan that protects their business’s longevity and secures their financial future.
Kariann Voorhees is an attorney and partner at Voorhees & Ratzlaff Law Group, LLP