Business Succession Planning: What You Need to Know
You started your company from scratch and are very proud of its achievements. Actually, you are quite confident that the business will flourish for many years to come. Nevertheless, you have a nagging concern. Who will take over running your organization if you are no longer there? In short, you need an understanding of business succession planning tools.
It could be that you are a sole proprietorship or own a family business. Here in the Houston area, you might head up your own ranch or farm operation. Whatever the case, you most likely put in a lot of sweat and labor to become profitable. For sure, you want your legacy carried on by someone you think will take the same pride in ownership.
Nobody likes to think of the inevitable. For that reason, many individuals put off drafting their wills. Business succession planning seems to invoke that same spirit of procrastination. However, it doesn’t just involve the death of a company owner. It also relates to what happens when the business leader retires. In some cases, business succession planning impacts the direction of the company if one of the principals divorces.
Business Succession Planning: When to Start
When should you consider business succession planning tools? In a best-case scenario, you should give it some thought when you first start putting your organization together. When you consult with an experienced business attorney, you’ll first want to decide on the formation of the business entity.
For most startups or existing businesses, drafting contracts is also essential. This can include partnership or employment agreements. Although it might seem premature to consider business succession planning at the same time, it really is never too early. Having a strategy in place is just good business sense. Even if you decide to hold off for a while, you need to know your options.
First, there’s the most obvious question. Who do you think is most qualified to take on the continued operation of your company? Some business owners clearly want to pass on their legacy to a family member. Others feel more confident that a trusted friend or business associate is more qualified.
In some cases, the idea of business succession is a moot issue. Perhaps there is no one capable of taking on the role of company leader. Instead, it might make more sense to offer the business for sale. Once again, this is something an experienced business lawyer can help you determine.
Business Succession Planning Tools
Earlier this year, a business article touted the advantages of business succession planning tools. Among other things, it addressed concerns about transparency. With a plan in place, even larger companies can count on a more seamless transition. Instead, the focus will be on running the business.
There is an assortment of options when it comes to business succession planning. For some, life insurance may be critical. For example, you might decide to leave your company to only one of your children and leave life insurance proceeds to another. The goal would be to establish estate equalization for your offspring not involved in the company business.
Business succession planning is best handled when it is formally documented in agreement form. For example, if you are a member of a partnership, you may decide that your partners can purchase your share of the business.