Business Succession Planning Considerations
Many business owners view the business as their primary source of retirement income. Others want to pass the business on to one or more of their children either as a gift of at very low cost. Every business owner has their own idea of what should happen to their business. What are your ideas? Following are some good questions to ponder:
- How much is your business worth?
- Who will be the future buyers of your business when you retire or can no longer lead it for any reason?
- What remains to be done to prepare these future owners before they can assume you leadership role?
- How will the successor(s) of your business finance the purchase of your ownership interest?
- Will you depend on the sale of your business for a comfortable retirement income?
- How would you define a comfortable retirement income in financial terms?
- Should something happen to you, how much would your family need to continue without you?
What if something unexpected were to interfere with your plans?
- If something were to happen to you that makes it impossible for you to lead your company, who would become the successor owner(s)?
- How much would they be willing to pay you, or your family, for your business?
- What is the funding mechanism under which you (or your family) would receive the full fair market value for your business?
- What are the predetermined triggering events that would facilitate a sale of your business? Retirement? Illness? Death?
- What binding arrangements have been made that provide you and your family certainty about a fair market value of your ownership interest?
- How much income do you (or your family) need once you are retired, have become ill, or have passed away?
- Are legal agreements up to date that spell out the terms of a planned business transition, providing security to your family, employees, and customers?
These are some good questions to think about as you develop an appropriate business succession plan covering plausible “what if” scenarios. There are three relatively simple plans that can address most or all of the above concerns for many privately held businesses. Your financial advisors can help you determine the most advantageous transition program given your thoughts regarding some of the above questions.