Owners of small businesses face a variety of decisions when it comes to planning for the future. What happens if the owner, or a co-owner, becomes incapacitated or passes away? What can be done if one partner decides to retire or otherwise leave the business?
If you want to leave the business to your family, how do you decide which members get what and are given which responsibilities?
These are all important questions that need to be dealt with in a business succession plan. The last thing you want is for customers, partners, or family members to be unsure of what to expect, or what to do, should a succession become necessary.
If you operate a business in or around Grays Harbor County, Washington, including the communities of Montesano, Aberdeen, and Hoquiam, contact William E. Morgan, Attorney at Law, for all of your business succession and estate planning needs.
You’ve built up a thriving business and you want to ensure that it continues to operate smoothly and successfully once you’ve retired, or once the unexpected happens, such as incapacitation or sudden death. This is where business succession planning comes into focus.
Any plan is going to involve having trained employees in place who can carry on the business seamlessly in the event of your impending or sudden absence. The plan should also be structured so that your business doesn’t end up in the wrong hands or being forced into a fire sale. Taxes and other estate planning considerations also need to be weighed and incorporated.
Overall, a good succession plan should focus on:
Transferring ownership when the time comes
Maintaining your lifestyle in retirement
Providing financially for your heirs
Preparing the business for unexpected or unforeseen events
How your succession plan evolves depends a lot on whether you’re the sole owner, the head of a family-run business, or have other partners.
Regardless of the structure of your business, SCORE — the nationwide network of volunteer business mentors — sees four options when the time comes, whatever the reason, to transfer ownership:
Transfer the business to your heirs
Sell the business to your partner(s)
Sell the business to a chosen employee
Sell the business to an outside buyer
If you’re the sole proprietor, selling the business to an employee or an outside buyer may be your best option. Doing so will probably require setting up a power of attorney for someone you trust to act on your behalf to accomplish the sale and transfer should you be unable to do so because of incapacitation or death. One potential obstacle may be that the chosen employee won’t have the cash to buy you or your estate out.
If you’re running a family business, the key decisions involve who among your family members can actually run the business. If a member or members of the family have been helping you all along, that decision becomes easier. The question then is how do you account for, and take care of, the non-involved family members financially.
If you have partners, the usual tool for succession is a buy-sell agreement financed by life insurance. One version of a buy-sell arrangement is called a cross-purchase agreement, in which each partner buys a life insurance policy on the other partners. When one partner dies, the others use the proceeds from their policies to buy out the deceased partner’s share at an agreed-upon price. An entity-purchase agreement involves the company itself buying a policy on each partner. When one partner dies, the company will receive the benefits and use the funds to buy out the deceased’s share of the business.
Problems with a partnership can begin to surface when one partner decides to leave the business. This possibility has to be anticipated and dealt with preemptively with a solid partnership agreement covering all eventualities.
There really is no “one size fits all” business succession plan in which you can just fill in the blanks and rest assured that everything is anticipated and taken care of. You need to consult with a business succession attorney to discuss every aspect of your business and your goals for it in anticipation of retirement or other events. Different arrangements, agreements, and legal documents may be involved in any given succession plan.
If you live in the Grays Harbor County area of Washington, or in the neighboring areas of South Bend or Raymond, contact William E. Morgan, Attorney at Law. An experienced attorney can consult with you, evaluate your situation, and help you come up with the best possible business succession plan. Call today to schedule a consultation to get started!