Creating a Business Succession Plan
April 29, 2022
As a business owner, you probably know how important it is to invest your time and effort into building and growing your company. However, it is equally critical to invest your time into developing a strategy to keep your business operating in the event of your retirement, disability, or death.
According to the U.S. Small Business Administration, Missouri accounted for over 532,000 small businesses in 2019. As an experienced estate planning attorney at TdD Attorneys at Law, I assist clients in St. Louis and Chesterfield, Missouri, and neighboring areas, to create a business succession plan and establish strategies for transitioning ownership and management.
What Is a Business Succession Plan?
When someone creates or acquires a company that generates revenue, they can make proper arrangements for transferring the ownership to a family member, employee, or another individual in the event of retirement, disability, or death. This can be done with the help of a business succession plan.
Typically, a business succession plan covers the following elements:
Triggering events. The list of circumstances that would trigger business succession (the so-called triggering events) and, if applicable, a timeline of the ownership transition.
Successors. As a business owner, you must choose potential successors who would assume control of the business.
Business valuation. The importance of business valuation when creating a business succession plan cannot be overstated.
Succession funding. There are several financing options for a business succession plan, which is why it is essential to choose a proper way to fund succession when creating a plan.
With a well-crafted business succession plan, you have the opportunity to minimize taxes, maximize the value of your assets, and ensure a smooth transition of business ownership.
Does Your Business Need a Succession Plan?
Creating a business succession plan is a crucial part of running a business. Everyone can benefit from setting up a succession plan for their business. With an effective plan, you can achieve the following things:
You can ensure that your business will continue. Even if something happens to you (disability, retirement, or death), a well-crafted succession plan can ensure that the company will continue to operate.
You can choose the successor you trust. If you think a particular person (an employee, your family member, or another individual) is the best candidate for taking over the business, you can choose them as the successor.
You can manage your company’s debt. Many businesses take out loans to secure financing for their operations. Your successors may not know what to do with all the debt you have accumulated, which is why you may need to address the management of your company’s debt in the succession plan.
You can minimize taxes. Another advantage of creating a business succession plan is that you can minimize the tax consequences of transferring ownership and control of a business to new management.
Seek legal counsel if you are considering creating a succession plan for your business. An attorney will assist you with the process of establishing an enforceable and effective plan.
The Steps of Creating a
Succession Plan for a Business
The process of developing a business succession plan includes the following steps:
Understand your long-term goals and define the vision for your company’s future
Hire an attorney to explain your business succession options and help you set up an enforceable plan
Make arrangements for different scenarios or triggering events (disability, retirement, and death)
Communicate the business succession plan to others
Get an accurate and updated business valuation
Obtain supporting documentation to formalize the succession plan
If you are considering creating a business succession plan, seek assistance from a knowledgeable attorney who can help you navigate the process of developing a plan and ensure that your documents are in line with current law.
What Common Obstacles Should Be Mitigated?
Succession planning is an inevitable part of doing business. If you are thinking about creating a business succession plan, it is vital to understand common obstacles that should be mitigated during the process.
Using ambiguous language. Using ambiguous language or not having a clear succession plan in place can entail serious problems and disputes, making a smooth transition impossible.
Creating a plan when it is too late. Succession planning takes some time, which is why it is essential to begin the process as soon as possible, even when you do not expect retirement, disability, or death to happen in the foreseeable future.
Not developing a well-crafted strategy. When setting up a business succession plan, it is important to understand your goals and the tools and strategies available to you to ensure that your strategy is robust and well-executed.
Inaccurate valuation. Not having an accurate business valuation can make business succession more complicated. For this reason, it is critical to hire a skilled financial expert to help you with business valuation.
As a knowledgeable estate planning attorney in St. Louis, Missouri, I guide clients throughout the process of creating a business succession plan, help them overcome potential issues and challenges, and assist them with putting a well-crafted plan in place.
Get the Best Legal Guidance You Deserve
At TdD Attorneys at Law, I regularly counsel owners of businesses in all matters of business succession planning. I assist business owners in St. Louis, Missouri, with making arrangements for a smooth transition of ownership, minimizing taxes, and protecting their legacy and the future of their business. Get a consultation by reaching out to my office.