We know that business succession planning and the idea of relinquishing control of a business, in which you’ve invested so much of yourself and your finances isn’t easy, but the earlier you begin to plan, the better prepared you’ll be for unexpected events and impending retirement. To boost the chances of a successful hand-off, transition plans should involve a thorough look at each of these areas:
Who will take over?
- Selecting your company’s next leader is frequently the most difficult element of a succession plan. Whether you are considering a family member or an unrelated party to carry on the business, you will need to assess each candidate’s interests and qualifications and how well they match the needs of the business. Ideally you will have more than one option and can work to groom potential successors for future leadership.
How much your business is worth?
- An accurate valuation is a critical part of succession planning and of estate and tax planning in general. A business appraiser or valuation expert can help you choose the most appropriate method for calculating what your business is worth.
Transfer of ownership — which option is best?
- The best option for transferring your business depends on the structure of your company, tax considerations, and personal or family circumstances. The most common options are gifting, wills, trusts, and buy-sell agreements. Life insurance is another important consideration, as it can be used to fund a transfer or to cash out your beneficiaries. Your accountant and tax attorney are valuable resources in planning a transfer of ownership and should be consulted concerning the potential tax and other consequences associated with each option.
When and how you will exit?
- Consider your business and personal goals as you decide when you want to begin stepping away from the daily operations of the business. Talk with your family, senior management team and key employees about your ideas for the future and how active you wish to remain with the business. It is also important to have certain documents in place, such as a power of attorney, a will, and possibly even a trust, which could come into play if you died or became disabled prior to your planned exit.