A business succession plan should include various financial and logistical decisions regarding the person you want to take over your business when you retire, die, or if you become disabled. A successful succession plan requires choosing the appropriate successor to run all aspects of your business and creating a selling arrangement. Typically, this involves securing a loan or life insurance policy with a buy-sell agreement.
Fives Ways to Transfer Ownership
You can transfer ownership of your business using one of the five most common scenarios:
- Heir – Pass along your business interests to a family member you trust to handle everything if you no longer can.
- Co-owner – You can sell your shares or ownership of the business to a co-owner.
- Key employee – A key employee is usually a person that has worked with you for a while. They know your values and the expectations you have for the future of your business. This is the person who will meet your interests and run the company how you would.
- Company – If there are multiple owners, you could choose to sell your ownership interests back into your business and distribute them to anyone planning to continue running the company in your absence.
- Outside party – Someone outside of the company might be interested in purchasing your business. You could create an agreement for them to take over when you step down or become incapacitated and don’t have the capacity to make decisions.
What to Consider When Planning Succession
Changing the ownership of a company you spent years or even decades building and running can seem like a daunting task. You want to ensure the person you hand it to can fill your shoes and take on the responsibilities you have held for so long.
A succession plan should benefit everyone involved and establish step-by-step instructions for the new owner. Protecting the success and continuity of the company is vital to avoid going out of business shortly after the change in ownership.
If you’re planning a business succession, you should consider these factors:
- Potential successors – Create a list of possible successors in order of consideration. Write a list of their strengths and weaknesses to determine which person would be the best choice.
- Timeline – Creating a timeline is another vital piece of a succession. You want to establish exact dates the succession should take place, including circumstances when it might be necessary, such as if you unexpectedly die or can’t make sound decisions following a catastrophic accident.
- Valuate the business – It’s vital to calculate how much your company is worth, so you know the estimated sale price. Most experts recommend determining your seller’s discretionary earnings and applying an industry multiple to generate the correct value.
- Funding – You can fund your succession through various means, such as a seller’s note, life insurance, and a range of other funding options.
How a Lawyer Could Help
We know how hard it might be to plan to give up your business one day. Some people never retire because they enjoy going to work every day. However, unforeseen circumstances, such as a serious accident, illness, or disabling condition, can prevent you from running your company successfully. If you can’t make the necessary decisions regarding daily operations, you need someone else to step up and take over.
An experienced lawyer from Wagner Zemming Christensen, LLP, can guide you through this complicated process. We will review all aspects of your business and help to create a succession plan that works for you.
If you attempt to do this alone, you could face various challenges and obstacles you don’t know how to overcome. When you have a knowledgeable legal team in your corner, we can implement the safeguards necessary to protect your interests.
If you’re considering a succession plan for your company, do not hesitate to contact the Riverside business lawyers at Wagner Zemming for help. We can discuss your succession plan during a confidential consultation when you call us at (951) 686-4800 or reach out to us online.