Why Does A Small Business Need A Business Succession Plan?
Do you own a small business? Does your family have a business? If so, do you know what would happen if you or another key employee were to become incapacitated, retire, or pass away? Most small business owners are focusedon the here and now. They focus on building their business, cultivating customer loyalty, and taking care of their employees. Unfortunately, many entrepreneurs do not take the time to focus on developing a business succession plan.
Why Do I Need a Small Business Succession Plan?
Some business owners include a business succession plan in their estate plan. While it is important to have an estate plan, you can develop your small business succession plan separately. At its core, a small business succession plan is a roadmap for closing your business upon your death, retirement, or incapacitation or ensuring your business continues operating successfully in your absence. Whatever road you choose for your business to travel down after your exit, the key is to ensure that the path is clear for your successors.
Some of the reasons why you need a small business succession plan include:
- You have the freedom to retire knowing that your business will continue to operate.
- Your plan should outline how you willbe compensatedupon and after retirement.
- Plan for a sudden, illness, or incapacitation.
- Control which family membersreceive ownership control of the business.
- How you exit your business can have significant tax implications for you and your family. A business succession plan can address tax issues before taxes become a problem.
- You have more time to train family members if you intend to leave the business to your family by developing a small business succession plan now.
- You can retain the level of control you desire after exiting the business.
- Develop a way to provide for and protect family members who are not involved in the business.
What Are the Basic Elements of a Small Business Succession Plan?
The elements in the succession plan for your business may be different from the elements for another business. However, basic elements that are often included in a small business succession plan include:
- Whether the business will continue operating, or the business will close for liquidation.
- If the business is to continue, who will operate the business? Will the business be transferred through your estate or sold to a third party?
- For an owner who plans to retire, choosing a person for a leadership role now is important. The succession plan can create a strategy for training this person for a seamless transition of power when the owner retires.
- Determine a method for valuing the company. This provision is very important if your business will pass through your estate to your heirs. It is also important if you intend to liquidate the business. By determining the method for valuing the business, you can decrease the risk that a family member will purposely undervalue the business in a buyout situation.
- Strategies for maintaining customer and employee loyalty.
- Taxation issues and legal considerations should be addressedwithin the plan.
- Define the roles, duties, and responsibilities of key employees and incentives for those employees to remain with the company after your exit.
An attorney can assist you in choosing elements for your small business succession plan that are relevant for your business.
Florida Business Law Attorneys in Broward County
Even with all of the planning in the world, it helps to have powerful resources by your side when the need arises. Matthew Fornaro, P.A. provides comprehensive business law services to individuals, companies, and businesses in Coral Springs, Parkland, and throughout Broward County. We encourage you to contact our law firm to speak with an experienced business law attorney.
To request a consultation, call 954-324-3651 or contact us online.