What is Succession Planning for Entrepreneurs?
When I am speaking with clients about the ongoing legal needs of their startup or existing business, an often overlooked topic is the future succession of their business. Whether a business owner likes it or not, they need to establish a plan.
Many business owners I speak with think succession planning only involves two things: the continuation of their business to the next generation or their business partners after death. However, there are several other things to consider.
Some of the matters in which you, as an entrepreneur, need to plan for include:
Any one of these events could adversely affect the operation and longevity of the business.
As an entrepreneur, you need to make sure you discuss succession planning with your business attorney. Just remember, failure to have a business succession plan can cause a business interruption that will not only affect you, but the people around you.
Developing a plan starts with developing a strong, thorough exit strategy. These strategies could include:
- Keeping ownership and management within the family
- Passing ownership to a key employee or employees
- Allowing a third party to purchase the business
However, every succession plan should also consider the following:
A transition of the business — whether to family members, a key employee or employees, or a third-party purchaser — can involve several complex aspects, such as:
- Tax consequences
- Proper valuation of the company
- The financial ability of a family member or key employees to purchase the business
- Whether the purchase should be partially or fully funded with life insurance
As your business grows, it is important to discuss these issues with your business attorney and trusted team of advisors. As stated above, the failure to have a sound and solid succession plan in place can result in business interruption, the business shutting down or even worse consequences!
For more information
If you are a business owner and have questions about legal issues affecting your business, or need to discuss a proper business succession plan, please contact our office at (513) 241-0400. You can also use our contact form to schedule a time to discuss your business with one of our Business and Corporate Attorneys. We look forward to speaking with you!