Business succession planning may be one of the most challenging issues a small business owner will face. However, a well-conceived succession agreement can minimize friction among owners, relatives, and key executives and ensure the business endures for the next generation.
Many small business owners may feel that succession planning is not necessary, since they are committed to managing their company until retirement. However, unplanned exits do happen. For this reason, it is imperative to have a succession plan in place. We have helped many of our business clients establish and execute a succession plan that provides peace of mind in the event of an unplanned transition in ownership.
On the other hand, you may be planning an exit strategy or already have a transfer in ownership underway. In this situation, we are here to help to make the transfer go smoothly and ensure your interests are protected.
Following are some common scenarios that may help you know what type of succession planning is needed for your business.
- If you founded your business with a partner/s, it may be that the co-owners are potential successors. Many partnerships draft a mutual agreement that, in the event of one owner's untimely death or disability, the remaining owners will agree to purchase their business interest from the next of kin. In addition, a buy-sell agreement, can ensure that the family is taken care of.
- If you have children or other family members working for you, choosing an heir as your successor can be an attractive option. However, passing your business onto your heirs does not come without complications. When everything is written out in a plan, it can alleviate chaos and stress when the transfer takes place.
- Many companies have a key employee that they may want to entrust their business to. This will require a buy-sell agreement where your employee agrees to purchase the company at your retirement date or in the event you are unable to manage your business.
- Is there another entrepreneur or even competitor that may be interested in purchasing your business? If this is the case, prepare your business now for sale by hiring and training a great general manager, formalizing your operating procedures and getting your finances in check. This makes it more attractive and valuable to outside buyers.
- If your company has multiple owners, an "entity purchase plan" or a "stock-redemption plan" may be the answer.
A good succession agreement should take into account federal and state laws applicable to the sale of a business. We can ensure that these laws and all tax ramifications are considered in the drafting of the agreement. Please do not hesitate to contact me if we can be of any assistance in creating a succession plan for your business.
Jeffrey D. Cohen, Esq., C.P.A.