An important feature in overall business planning that should be considered now for the future continuity and survival of the business is Succession Planning. Succession Planning is a process for identifying and developing internal personnel to file key business leadership positions in the company at a future date. This process is ongoing and should span each group of the entity’s workforce. Succession Planning increases the availability of experienced and capable employees that are prepared to assume important roles as they become available.
In closely-held business, succession planning also involves planning for the transfer of ownership interests to family member and to those individuals identified in the prior paragraph. For larger and public companies, the ownership interest transfers are not as important to the business as much of the leadership are not related to the owners (although some overlap will occur).
Most companies develop a business exit plan to ensure that a healthy business transfers without having to close due to taxes on the transfers, probate contests of the ownership interests, lose of business due to the individual's key role in all business operations. Business Exit Planning is the process of defining exit-related objectives for the owner(s) of a business, followed by the design of a comprehensive strategy and road map that take into account all personal, business, financial, legal, and taxation aspects of achieving those objectives, usually in the context of planning the leadership succession and continuity of a business. Objectives may include maximizing (or setting a goal for) proceeds, minimizing risk, closing a transaction quickly, or selecting an investor that will ensure that the business prospers. The strategy should also take into account contingencies such as illness or death.
The truth is that many business owners have no exit strategy for their businesses, which may happen in the event of disability, retirement, or death. A business exit strategy not only means having a plan for the unexpected - including financial hardship, injury, disability and even death - it also means having a plan for the succession or transfer of ownership of the business when it comes time to hang up your hat and retire. Here are a few things to consider as we plan the business exit strategy:
TYPES OF PROPER PLANNING
There is no "one plan fits all" when it comes to developing a succession plan for your business. However, following Score’s recommended five steps to succession planning (http://www.score.org/resources/developing-succession-plan) can help provide some practical direction and deliver the peace of mind that comes from knowing that your life's achievement is in good hands. You may only turn over opeations and stay an owner, receiving dividends. If this happens, who you train becomes even more important.
2. As with career employees, you will want to ensure that you invest in a retirement plan, life insurance and even personal disability insurance - all of which will protect you and your family when it's time, forcibly or not, to step away from the business. It's relatively easy to address retirement planning, because we all hope to get there and, more importantly, want to enjoy it. But life and disability insurance are equally important for the small business owners, because they protect you and your family, should the worst happen. Here are some tips for finding the right plans for the business business:
a. Finding the Right Retirement Plan – For you personally, talk to your bank or financial planner about a setting up an IRA or other retirement solution. Or since you have employees, consider setting up a small business retirement plan for both you and your employees. It also may offer a nice tax deduction.
b. Disability and Life Insurance Options - While some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related sickness or injury (to consider as you grow), most businesses opt to provide both disability and life insurance as part of an overall compensation or benefits plan. These type of plans may become important when considering buy-out agreements, like we discussed last year.
OBLS CAN HELP!!
OBLS works with businesses to establish a Succession Plan that is built around a Business Exit Plan. We also work with each owner on his or her individual estate plan, as appropriate.
Whether you are selling your business, transferring ownership, seeking retirement, or facing a "forced-exit" such as bankruptcy or liquidation - planning your exit is a big undertaking that has implications on employees, your business structure, its assets, and your tax obligation.
Before you embark on your exit strategy, be sure to engage with us. That way, you will be sure that you explored many, if not all, the options available to you. If you want more information about exiting your business, be sure to check out the IRS's Guide to closing a business and contact us.
WHAT SHOULD I DO NEXT?
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