So many things can wreak havoc on your bottom line! Doing business without a succession plan can invite disruption, uncertainty and conflict, and endangers future competitiveness.
In our last blog, we introduced the concept of succession planning to ensure business success. Next, we will discuss the final steps critical to succession planning.
Estate planning is another critical step in the process. Address taxation implications to the owner/business upon sale or transfer of ownership. Determine if your estate has enough liquidity to pay for estate taxes. Have you considered a buy/sell agreement? Make sure to develop estate and personal financial plan for the owner, spouse and succeeding generations. Also provide for active and non-active family members (consider providing non-dealer related assets to non-active family members). Will non-active family members receive an equitable share of assets?
Consider the transfer methods and corporate structure. Various options should be generated and considered to address as many family and business needs as possible. At a minimum, consider the following and document your conclusions:
- Method of transfer may include outright purchase, gift/bequest, or a combination thereon.
- If the business is to be purchased, financing options need to be considered, including financing from an external party or will the previous owner hold the loan?
- If the business will be purchased, ensure the business can generate adequate after-tax cash flows to support debt and interest payments.
- Tax strategies and implications.
- Legal implications.
- Business structure options such as sole proprietorship, partnership, or corporation.
- Business agreements.
- Insurance needs including health, life, and disability.
Contingency planning should identify potential problem areas. Dispute/conflict resolution mechanisms should be considered and addressed in business agreements. Planning should develop “what if” scenarios including action plans (including possible disability of yourself and your successor). A plan should also be in place in case you become permanently disabled.
Business valuation is another important step. Make sure to obtain appraisal to determine fair market value of both the business and the real estate. An exit strategy should be established. This should determine method of transfer, establish a timeline for implementation of the succession plan, publish the plan so that affected individuals are aware, and communicate regularly with all affected parties. Implementation and follow-up should include a timetable that has been established and is being followed, as well as a review the plan on a regular basis and updating as necessary.
Document maintenance is an important step in the succession planning process. At a minimum, these current documents should be maintained in a file: a legal will, power of attorney(s), property deeds/titles, leases, rental agreements, mortgages and notes payable, tax returns, financial records and financial statements for last five years, bank, brokerage, savings and retirement account information, and a contact listing of all professional service advisors.
Contact us for a free virtual consultation to learn which steps are next to protect your business today! We can help with succession planning for your family business, succession planning for leadership and non-leadership roles, succession planning for retail management, and business continuity plans. Call us at 404-432-2137 or email us!
