June 25, 2013 at 7:54pm
Succession Planning refers to the plans you make for your small business in the event of your death or retirement. While succession planning concerns will vary from business to business, based on what kind of business it is, whether or not it’s family owned or otherwise, and how much its worth, there are some general outlines you should keep in mind when creating a succession plan. You should have a succession plan at least outlined, whether or not you plan on retiring soon: in the of your death or disability, you want to be sure that your business is protected, and that your employees know what to do. A good succession plan has the following elements accounted for:
a successor - choosing someone from within the business to take over your responsibilities. If you have a family business, this can be a child or spouse, however, you should be aware of potential estate or gift taxes applying to the transfer. For a sole proprietorship, you can choose someone within the business, or look for someone without, or a purchaser. In a partnership, you can either choose someone to succeed you in the business, or have the other partners buy you out.
financial protection - life insurance and a retirement plan are both important in order to ensure that you have enough after your retirement. Life insurance is frequently also used by partners and the business itself as a way to buy out your share of the company after your death.
a transfer mechanism - to pass the business from your hands to your successors’ as seamlessly as possible. This can be an outright sale, all of the funds for the entire company at once, or a basically a flexible payment plan that allows the buyer to pay in installments, and the seller to receive a monthly income from these installments - this form is particularly useful for planning a succession for retirement.
Before you begin planning your succession you should consult with a tax attorney, as well as get your business appraised (a good practice every few years anyways). This will allow you to make the best decisions for your business.
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