Success(ion) Planning
It's never too early to plan for your success(ion).
No matter what your age or stage of your business, it's wise to look ahead. Planning ahead is your best bet to getting the outcome you want.
When I left corporate life to start a business, my plan was to run the business for five years (while my kids were in school) and then sell the business and move on. That was the agreement with my business partner, and it worked out. We had a written agreement so that we were clear about our mutual expectations.
Where are you now?
- Starting a business?
- In an established business but ready to move on?
- Ready to transfer ownership, semi-retire or retire?
- Ready to close/dissolve your business?
Starting a Business
At the start of a business, it's important to be clear with your business partners about expectations and goals.
Do you plan to:
- work in the business until retirement?
- work as long as possible (not retire)?
- transfer the business to family members?
- sell the business?
Talk with your business partners about how you will part company. Inevitably you will. Death, disability or a wide variety of other reasons (including wanting to live in a warmer climate) will cause you to split up. So, it's important to put together an agreement for how you will handle the transition. This is called a Buy/Sell agreement.
Established business
When one of the owners decides to retire or move on, the critical question is how much the business is worth. Your agreement should establish a valuation methodology and how a departing owner will be compensated for his/her interest.
Retirement
If you want to have a continuing revenue stream from the business in retirement, you need to lay the foundation with a plan for your successors to take over the day-to-day operations of the company.
In conclusion, planning can save you and your survivors a great deal of trouble. Putting a Buy/Sell agreement in place provides for the orderly transition of a business under circumstances such as:
- death,
- disability,
- divorce,
- loss of license,
- conviction of a crime,
- retirement, or
- disagreement about the direction of the company.
Without a Buy/Sell agreement, you may find yourself unable to extricate yourself from a difficult situation, or find yourself in business with the heirs of your deceased business partner. A Buy/Sell agreement with life insurance policies can assure that the funds are available to buy out the ownership interest of a deceased business partner.
Sole Proprietor
If you are a sole proprietor, without business partners, it's still a good idea to have a succession plan so that your survivors are not left with a mess. As part of your Estate Planning (your will and trust), specify how the company's ownership will be transferred and who will manage, operate and/or sell the business upon your death.
Don't wait until there's a crisis - put a plan together!
About the author:
Jean D. Sifleet, Esq. CPA is the head of the Business Practice Group. For practical information, check out Jean's articles and books which are featured on this site. For legal advice related to your business, contact Jean at 508-361-0916 or jean@smartfast.com
