Your Business Succession Strategies
Your business is likely one of your most valuable assets. For this reason, business succession planning is crucial when creating an estate plan. A business succession plan clearly defines who will take on which roles, aiming to prevent disputes among family members or employees. If the business is sold later, the plan will also clearly state the sale price and terms. Good business succession strategies guarantee a smooth handover of ownership. Whether you run a business alone or with a team, knowing your choices is vital for making smart decisions that match your business goals and provide the legacy you wish to leave for your family.
Passing Your Business to the Co-owner
Co-owners play an essential role when you plan for future life changes. Selling to someone already involved in daily operations and dedicated to your company can ensure the business’s continued success. It is vital to ensure that your partner has enough funds for purchase. You can do this in several ways:
- Secure term life insurance that can pay out at death.
- Secure permanent life insurance that pays out at retirement or disability.
- Include terms in your buy-sell agreement for the partner to pay over time.
Transferring Ownership to an Employee
Selling to a trusted employee ensures that the business is run by someone who appreciates it and is familiar with the daily operations. However, like selling to a co-owner, employees may not have the funds to buy it. In this case, you can consider seller financing. Seller financing involves lending money for the sale with a promissory note, allowing the buyer to directly pay you back (or your family after your death). It benefits the buyer by owning the business and provides a regular income from principal and interest. Establish down payment and monthly payments in the buy-sell agreement, negotiating and documenting terms in your succession plan.
Leaving Your Business to Family
Many choose to keep the business in the family by leaving it to a child or grandchild. This is an excellent option if family members are already working for the company. Importantly, there are estate planning strategies to consider when leaving the business to a family member. For example, transferring some of the business as a gift may help lower taxes if the lifetime federal gift tax exemption is utilized here.
If you have several family members to whom you want to pass the business, ensure your buy-sell agreement clearly defines their roles. You should also address in your estate plan how to equalize the inheritance of other family members who will not receive ownership in the business so that these family members do not think they are disinherited.
Selling to a Competitor
Another option is to sell your business to an outside individual or competitor. Of course, you’ll need to create a proper buy-sell agreement. Furthermore, consider having a skilled manager document your operating procedures and financial reports to ensure a smooth sale. Potential buyers can better assess the business’s viability and plan their takeover effectively that way.
Secure Your Business Legacy with Law Stein Anderson
At Law Stein Anderson, our mission is to assist you in crafting the optimal estate plan tailored to safeguard all your valuable assets, including your business. We specialize in expertly navigating the complexities of business succession planning, ensuring a seamless transition of ownership for your company. Don’t leave the fate of your business to chance. Partner with Law Stein Anderson today to pave the way for a prosperous tomorrow. Schedule your complimentary business succession strategies consultation today!