Business owners, by the nature of their roles and responsibilities, have significant issues to consider when planning their estates. Specifically, business succession planning is required for those who wish to sell or pass on their business upon retirement, or upon an untimely death, in a purposeful manner. As with estate planning overall, business succession planning should be started as early as possible to ensure adequate measures have been taken. The following five issues should be considered as part any business succession plan.
In some cases, business owners will know well in advance who they wish to name to take over the business. If the owner intends to pass on the business to a child or other family member, for example, succession planning may be fairly straightforward. When planning for a sale of the business to an outside buyer, however, it is often impossible to know who the buyer will be in advance. If this is the case, additional lead time may be required to actually sell the business.
Prior to selling or passing on the business, it is a good idea to have a transition plan in place. This plan will include making sure the new owner is aware of all the business relationships, vendors, and others that are essential for the success of the company. In addition, sharing information on how the day to day operations work can help to ensure that the new owner can be successful. While every business is unique, a good transition plan may cover anywhere from a few days to several months (or even years) to ensure everything is done properly.
Succession planning is an important part of estate planning and running a business, and just like other aspects of planning, it should be done in a structured and legal way. Having an attorney draft official documents related to the business can help to avoid misunderstandings and ensure a smooth transition. Legal documents can also provide significant protections should something fail to go according to plan.
Succession plans should be reviewed on a regular basis to account for any changes occurring within the business or changes in plans of the ownership. Frequent minor updates are much easier to make than having to completely redo a plan after a long period of time. These regular updates will also assist in making sure that the succession plan is up to date should a business owner die unexpectedly.
Whenever engaging in any type of estate planning, including business succession planning, an attorney should be involved. Contact The Law Offices of John Mangan to schedule a time to go through the steps of succession planning and ensure everything is in proper order.