Have you thought about what will happen to your business when you pass away? It’s never too early to start succession planning.
Few business owners like to think about what will happen to their company in the event of their incapacity or death. And in an increasingly competitive environment, simply maintaining your growth may consume virtually all of your attention. However, succession planning cannot be ignored if you wish to ensure the long-term health of your business.
Knowing that your business has a plan for stability in turbulent times can be extremely valuable. In addition to minimizing the chance of ownership disputes in the future, it builds confidence among stakeholders, employees and the market. Plus, it’s less painful than many business owners think, according to Investopedia.
How can I protect my business legacy?
Your individual succession plan will depend on many factors, including the value and structure of your business. Generally, there are five steps that you should take if you wish to begin succession planning.
- Think about your goals- When you’re no longer able to run your business, do you want to sell it and leave the profits to your heirs? Or is it important to you that the business live on? If you know priorities, the right professionals can help you realize them.
- Choose a successor – Choosing a family member or business partner to run your business in the future can be daunting, and there may be resentment among other parties. Consider the strengths and weaknesses of each candidate, as well as an exit for those who may wish to leave at the time of succession.
- Determine the business’ value – A CPA can determine this for you, or all partners can stipulate to an agreed-upon value among themselves. If your company consists solely of publicly traded stock, the market will determine this value.
- Get insurance – Life insurance benefits are typically used to purchase a partner’s stock in the event of his or her death. Each partner should have a life insurance policy in the value of his or her stake in the business.
- Set up an agreement – If you die before ending your relationship with the business, your life insurance death benefits will be used to buy your interest and distribute it between the remaining partners. A contract will lay out the method by which this is accomplished.
Of course, this is not an exhaustive list and an attorney can explain specifics. The right lawyer can help you create a succession plan that protects your business’ future and allows you to focus on what you do best – growing your business.