After dedicating all the time and resources necessary to build your business, it is hard to imagine it all suddenly going away. However, unlike corporations, small businesses are at a high risk of failing if a partner or owner dies without a business succession plan. Planning the transfer of your business requires several important considerations, both financial and interpersonal.
Here are three tips for creating a business succession plan that will protect your hard work:
Choose the right successor
Picking the right person to take over your business is a delicate process. There might be other partners or family members with the skills and experience to take over. But, don’t forget about the emotional aspect of succession. In most cases, the best way to avoid resentment is to be transparent about your plans.
Determine the value of your business assets
Having an idea of your business’s value is essential to creating the right type of succession plan. Have a professional appraiser take stock of your business, or you can do it yourself. Once you take stock of the important assets, you can choose the best form of succession.
Consider a buy-sell agreement
Buy-sell agreements lay out how your interest in the business will be sold after a triggering event, such as retirement, death or incapacitation. A robust buy-sell agreement takes into consideration the fair market value of the business and minimizes tax liability. Business owners can also use the buy-sell agreement to outline rules for possible buyers. If there is someone you specifically do not want to buy your business, the agreement can reflect that.
Business succession plans come in all shapes and sizes. If you are unsure of where to begin with planning for the future of your business, consulting with an attorney skilled in both business law and estate planning can be a great start.