What is a Business Succession Plan?
You own a business, and you are getting ready to retire. Ever since you started your business, you presumed that it would take care of you during your retirement, and in your old age. You think to yourself. “I own the company; so, when I retire with my spouse down to the Caribbean, I will continue to draw my salary, while my employees (or children) run the business.”
Think again! First, the IRS will definitely not think too kindly about that idea. Second, you also face the risk that your employees may not run the business as competently as you did, with disastrous consequences.
So what do you do?
- Sell the business to your key employees or your business partners
- Transfer the business to interested family members, such as your children
- Sell the business to an interested outside third party
If you are like many small business owners, sustaining positive cash flow and a stable balance sheet can be an ongoing battle that consumes virtually all of your time. Your retirement may seem like a distant dream because the time required and the complications of handing the business over to someone else, or finding an interested buyer can be daunting. For these reasons, establishing a sound business succession plan is beneficial for most business owners, and may be absolutely necessary for others.
If you are at or near retirement, the issue of business succession cannot be ignored. Many factors will determine whether a plan is necessary, and sometimes the logical and natural choice will be to simply sell the entire business. However, if you are like many owners you may prefer the thought of your company or practice remaining even after you are gone. Choosing your successor can be as easy as appointing a family member or a key employee to take your place. However, you may have several partners or family members from whom you will have to choose, each with various strengths and weaknesses to be weighed and evaluated. In this case, lasting resentment by some or all of those that you did not choose may result, no matter what choice you ultimately make.
Proper business succession planning requires sound preparation. Business owners seeking a smooth and equitable transition of their interests should seek a competent, experienced advisor to assist them in this matter. For help with your business succession plan, please call our office for the first meeting to determine if our firm is a good fit for your retirement and business succession goals.
Ron Haller is not an attorney. Please also consult with a qualified attorney to help determine a strategy for your business succession plan.