What is Corporate Succession Planning for Your Business?
November 30th, 2022
As a business owner, building your company has been your life’s work. You have spent your career growing your business, managing cash flow, meeting and exceeding customer demands, and managing employees. When you have “free time,” the last thing on your mind is planning to one day hand your business over to someone else. But without a corporate succession plan, the company you worked so hard to build could fall apart and dissolve into nothing.
Many small businesses do not survive a change in ownership. And while more than 90% of American companies are family-owned, fewer than 30% have a corporate succession plan.
The business succession planning lawyers at RKPT can help you prepare a corporate succession plan that will account for your individual needs and goals while planning for and protecting the future of your business.
What Are the 2 Most Common Types Of Succession Planning?
In broad terms, there are two basic types of corporate succession planning.
Exit Succession Planning
An exit succession plan monetizes a business’s illiquid assets to meet the owner’s personal financial goals, protect their wealth, and move the business owner into the next phase of life. An exit succession plan prepares the business and the business owner for a transfer of ownership on a specific date and puts in place the tools needed to effectively transfer ownership with as little disruption to the business as possible.
The corporate succession planning lawyers at RKPT frequently consult with accountants, business appraisers, tax advisors, financial advisors, and insurance professionals, among others, to craft customized exit plans to preserve wealth, minimize taxes, and provide business owners with financial security.
Death-or-Accident Succession Planning
A death-or-accident succession plan protects the business and the business owner’s family in the event of an owner’s unexpected death or disability. Once tragedy strikes, it can be challenging to deal with business succession issues. Failure to plan for this situation could jeopardize the company’s long-term health.
A business succession plan will ensure that the business will continue to operate. It establishes a monetary value for the company and helps avoid problems by coordinating each owner’s estate plan with the needs of the business. A death-or-accident succession plan typically includes a buy-sell agreement, often funded by a life insurance policy.
Five Common Steps Involved In Succession Planning
Business succession planning may sound daunting. But the business and personal planning lawyers at RKPT will guide you through the process to make it as stress-free as possible. There are five common steps involved in succession planning:
Timeline of succession. While it can be difficult to predict when an ownership transition should occur, it is best to begin the process early enough to create a thorough succession plan with key benchmarks to ensure a smooth and seamless transition. Despite the best-laid plans, unforeseen events such as health concerns, changes of heart, or other issues within the company can and will occur. A good corporate succession plan will account for these unexpected events and incorporate them into the overall strategy.
Determining your successor. In some cases, the business successor is clear. Perhaps you have a business partner or a child who has been working in the business for years. Other times, you will need to evaluate the strengths and weaknesses of various candidates to choose the right business successor.
Formalize your standard operating procedures (SOPs). Corporate succession will require that many processes be transferred from one person to another. To ensure this process happens smoothly, formalize the processes by documenting SOPs. You should also include a detailed written plan for the succession of the business and ensure that company records and documents are well-organized and easily accessible by key business leaders.
Value your business. Establishing the value of the business often requires an evaluation by a business appraiser or an accountant. Alternatively, the business owners can agree on the value of the business and how the purchase of an ownership interest will be handled.
Fund your succession plan. A corporate succession plan is often implemented through a buy-sell agreement that is funded by a life insurance policy. The buy-sell agreement can specify who is allowed to take an ownership interest in the business, what will happen if a business owner leaves or decides to retire, how ownership interests will be handled in the case of a divorce, and what will happen if someone inherits an ownership interest through the death of an owner.
Contact RKPT to Create a Customized Corporate Succession Plan
Planning for the future of your business may seem like a daunting task. RKPT can help you create a corporate succession plan that will protect you, your family, and your business. Our lawyers take a holistic approach to business succession planning that brings together our business and estate planning lawyers in consultation with accountants, business appraisers, tax advisors, financial advisors, insurance professionals, and others to create a corporate succession plan that will protect the future for your business, your family, and the people who depend on your company for their livelihood.