What Does Business Succession Planning Accomplish?

There are many business owners who pay painstaking attention to every detail of their business. However, one detail that is almost always ignored until it is too late is proper business succession planning. The failure to have a business succession plan in place is one of the main reasons for business failure and closure.

A business succession plan can address the following issues:

  • The process of retirement and selling your business
  • Developing a plan to retain ownership interest in the business after retirement
  • Developing a plan to sell the business to an outsider, a family member or a trusted employee
  • Developing a plan for sale that could include cash, seller-financed or bank note financing
  • Developing a plan for transition in the event of disability
  • Developing a plan for transition in the event of death
  • Developing a plan regarding the purchase of the deceased business owner’s share
  • Protecting the business in the event of personal bankruptcy of a business owner or business partner
  • Protecting the business in the event a business owner or business partner files for divorce

What Happens if There’s No Succession Plan?

Let’s look at John and Joe Plumbing Company to see what happens if there is no succession plan. John and Joe establish the John and Joe Plumbing Company. Unfortunately, Joe suffers a stroke and is unable to return to work. However, Joe owns 50% of the stock in the company and John owns the other 50% of the stock. John and Joe have no succession plan. John and Joe are stuck in a situation where John owns 50% of the stock but is doing 100% of the work.

John attempts to buy Joe out of his stock because Joe cannot return to work. The company has a formal valuation conducted and the company is valued at $2 million. The problem is that John does not have $1 million to buy out Joe.

This creates a problem for John and Joe in coming to terms with Joe’s buyout. The buyout may include purchase over time, the company incurring a bank note or seller financing the purchase. The unfortunate aspect is that this oftentimes turns adversarial. In addition, this is a situation that could have been completely avoided.

Business succession planning can ensure that your business continues, the dissolving of a partnership doesn’t end your business and that your business can continue long after you have left the company — among other reasons. No company is in a solid financial position without addressing its succession planning issues.

For More Information

If you have questions about business succession planning, please contact Aronoff, Rosen & Hunt, LPA at (513) 241-0400. You can also use our contact form to schedule a time to discuss your business succession planning questions. Our Business and Corporate Law attorneys look forward to speaking with you!