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Saturday, January 20, 2018

Why Do I Need a Business Succession Plan?

You have worked hard and built a successful business. And now you hear about something called a business succession plan. You have two questions, what is it, and why do I need a business succession plan?

The short answer is: you are mortal. One day, you will no longer be around to run the business you worked so hard to build. Do you want to just leave it up to chance and hope for the best, or do you want to plan well so that the company stays strong and successful? And if you do not want to work in the business until you fall over, succession planning is essential for you to retire and have money to live on without having to work. Talking with a business succession planning lawyer can assist you in ensuring you have funds to live on once you cease working.

Family owned businesses make up an estimated 80 to 90 percent of all businesses in America. Unfortunately, more than two-thirds of family businesses do not succeed past the first generation, and 90 percent do not make it past the second generation. Succession planning is the best hope for your business, whether it is a family business or not, to continue after you are no longer involved.  

The Best Time to Plan is When You Are Healthy and Involved in the Company

As President John F. Kennedy said in his State of the Union Address on January 11, 1962, “The time to repair the roof is when the sun is shining.” The worst time for your survivors to have to figure out who will run the company and how is in a moment of crisis because you have suddenly developed an incapacitating illness, suffered a severe injury, or died.

Why You Should Have a Business Succession Plan

Business succession planning can help to:

  • Let you decide, not someone else, who will take over the business
  • Let you set up how your successor will run the business
  • Generate income for you in retirement, to maintain your lifestyle
  • Prevent failure of the company 
  • Protect your employees
  • Provide funds for estate taxes
  • Reduce income taxes (if you transfer ownership slowly over a number of years)

Succession Planning Issues

You will need legal and tax advice to set up an effective succession plan. You should consider these issues when preparing the plan:

  • Finding someone who is both interested in taking over the business and is acceptable to you.
  • Preparing your successor to run the company. Even if your now-adult child grew up working in the business, he or she needs to see the company from your chair.
  • Sometimes the best person to pass the torch to is not a blood relative.
  • If you have more than one child, there may be sibling rivalry, regardless of whether they are all interested in working in the business.
  • To provide a clear chain of succession and prevent in-fighting, you should have your lawyer write a buy-sell agreement, in which the person you choose will buy the company for an agreed-upon price. You will have purchased life insurance that will fund the sale of your business interest. Your surviving spouse will receive the life insurance-funded purchase money, and can use the assets for living expenses.

Business succession planning can involve many more documents than just a buy-sell agreement. Get the information you need to protect your business and your family by talking with an experienced Alabama elder law attorney.

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