Business Succession Plans
It is estimated that 70% of successful small business owners do not have a plan to transition from work life to retirement. Some have never thought much about it while most have not taken the time to put a formal plan into effect. For business owners who want to see the business succeed well into the future, it is imperative to plan ahead so the owner exits at the right time and the right people take over the business.
Do You Really Need A Business Succession Plan?If you’re not sure if establishing a plan is the right thing for you then take a quick look at this video:
Things To Consider:
In most cases, the business is the owner’s largest asset. And in most cases it took years of hard work and significant financial investment to get the business to become profitable and sustainable. Without a formal succession plan in place all of that time, energy, and financial investment could become basically worthless. That’s because the typical business is valuable only because the business owner is there in the business running the business. What happens when the owner is no longer there?
The Problem With Waiting:
There’s a popular Chinese proverb that says: “The best time to plant a tree was 20 years ago. The second best time is now.” The same applied to business succession planning. The longer the business owner puts it off, the less likely it is that they will capture the maximum value of the business for retirement purposes. Perhaps the owner is waiting for the best time to sell the business. This is nothing more than a hope and a prayer that somehow the timing works out just right. Unforeseen changes to economic conditions, tax laws, and even personal health can have a serious impact on the future value of your business. The truth is, there may never be a “perfect time”. That‘s why the best time is TODAY!
What Is Needed To Create A Plan?
Step 1: Create Your Trusted Team of Advisors
You will need to meet with a few different professionals to coordinate activities. Your teamshould include your Financial Planner, CPA, Business Valuation Specialist, and BusinessAttorney. These people will work together to ensure the best outcome for you.
Step 2: Gather all of your business financial documents.
The most important records are your accounting reports, tax returns, and bank records.
Step 3: Identify a buyer you trust to take over your business
The most common scenario involves selling the business to an immediate family member who isinterested in owning the business and actually has the skills required to manage it successfully.Otherwise, a friendly third-party buyer should be sought. Possible candidates might include aknown competitor. If a good candidate can’t be found then a reputable business broker shouldbe included in your team of trusted professionals.
Step 4: The business valuation specialist will prepare estimates for the value of the business
Step 5: The attorney will draft a legally binding buy-sell agreement contract.
The attorney will help look after the current owner’s best interest and also formalize the termsagreed upon by the potential buyer.
Step 6: Life insurance should be purchased by each party
At the time of purchase the buyer will either pay the full agreed-upon price for the business orwill make a significant down payment and pay the balance like a loan. The life insurance policyon the buyer ensures that the seller will receive the full value for business in the event of thebuyer’s death. The life insurance policy on the seller provides the buyer with a tax-free lump sum that can be used to pay the surviving family for the ownership of the business. Since premiums are much smaller than the coverage provided, the buyer’s total cash outlay can be significantly reduced.
We Are Able To Advise You
Larson Wealth Management is familiar with the process of succession planning and we are prepared to help you exit your business when you want and how you want to. We will coordinate the planning activities between the necessary professionals. We can recommend competent third-party professionals if you do not already have such relationships in place.
ARE YOU READY TO WORK ON YOUR BUSINESS SUCCESSION PLAN?
Getting started is easy. The first step is to let us know how we can help you. Just fill out the simple contact form below and we will be in touch with you right away – or just call us at 480-699-5540.