What is business succession planning?
If you have been actively involved throughout your career in building your business and overseeing its continued success, thinking about retirement can call for answers to difficult questions.
Your situation may involve a child who is part of the business. You may have certain employees who wish to take over. Perhaps you have neither, and your questions begin with finding a buyer. Your concern may lie primarily in providing for your spouse in the event of your death or disability.
These are all common scenarios faced by business owners. How do you leverage your years of hard work you have invested in building a successful business to ensure it continues to flourish through a transfer of leadership to the next generation?
A successful transfer requires intricate planning. Failure to properly plan for a smooth succession during your lifetime can result in monetary losses, increased taxes, damage to family relationships, and even loss of the business.
Estate planning is an essential component of the succession planning process. The goal of estate planning is to ensure that your loved ones are cared for after you are gone. Estate planning provides for the management and transfer of your assets, including your business, in the event of your death or incapacity, at the lowest financial and emotional cost for your family.
Business succession planning integrates estate planning techniques in order to position the business for continued success throughout and following its transfer.
There are three essential steps to developing a business succession plan.
- Define your long-term personal and business goals.
- Develop a management plan for the business.
- Design an estate plan to transition ownership of the business.
In this article, we look closely at the first step.
Define your long-term personal and business goals
When you create long-term goals for your business, consider the “what,” “when,” “who,” and “how” questions. For example, what is the value of the business? How much do you need to retire? When are you ultimately looking to transition the business? Is there a key employee or child active in the business? How will you navigate the necessary family dynamics? Are there competitors or strategic partners who may be interested in buying your business?
The long-term goals you establish for your business will ultimately determine the appropriate financial planning, retirement planning, transition planning, estate planning, and tax planning methods to employ.
Build Your Team
Surrounding yourself with a strong team of advisors to assist you in developing and implementing a sound succession plan is critical to achieving your goals. Your team should consist of an estate planning attorney familiar with succession planning, a business lawyer, an accountant, a financial advisor, and an insurance agent. Together, your team will review your goals and evaluate the present state of your business, helping you to to forecast realistic and obtainable results and to maximize liquidity for your business.
Value Your Business
During retirement, you may be dependent on the business to sustain your lifestyle or to provide for your spouse in the event of your death or disability. Obtaining a business valuation is crucial: only after determining the true value of your business will you have the ability to make informed decisions concerning your future goals and finances. A solid financial plan is essential in order for the business to continue to providing income for you and your spouse after succession.
Ready for the next steps? Read on in our business succession series:
- Step 2: Develop a Management Plan for the Business
- Step 3: Design an Estate Plan to Transition Ownership of the Business
Pittsburgh Business Succession Planning Attorneys
Dan Lynch, Founder and Managing Partner of The Lynch Law Group, routinely helps business owners with the transition of their business. For questions about this process, Dan can be reached at firstname.lastname@example.org or via phone at (724) 776-8000.