Business Succession Planning
Family businesses face unique challenges. This leads to a large portion of them failing to survive into the third generation. This is due to a variety of factors. The business might have to be sold to generate the funds to pay estate taxes. Or surviving family members might have contrasting desires for what to do in the future: some may want to continue the business; others may want to “cash out” and walk away. Whatever the situation, implementing a Business Succession Plan before a triggering event arises can help make any transition go more smoothly.
Business Succession Myth: Ownership Equals Control and Income
Too many owners see a business succession plan as changing of ownership and giving up control and reducing income. It’s advisable to create a succession plan that transfers ownership to a successor and maintains control and/or income. An owner may still manage his or her business and be paid for that role. However, the earlier a business owner begins transferring ownership to a successor, the likelier it is for a succession plan to be a success, both emotionally and financially.
3 Reasons to Have a Business Succession Plan
Creating and implementing a business succession plan will provide several benefits to owners and partners:
- It ensures an agreeable price for the owners share of the business and eliminates the need for a valuation upon death because the insured agreed to the price beforehand.
- The policy benefits will be immediately available to pay for the deceased’s share of the business, with no liquidity or time constraints. This effectively prevents the possibility of an external takeover due to cash flow problems or the need to sell business or other assets to cover the cost of the deceased’s interest.
- A succession plan can greatly aid in allowing for timely settlement of the deceased’s estate.