Understanding a Business Succession Plan

By: Nataline Garcia, Esq.

Last week in the blog titled “Do you need an Estate Plan” we overlooked the several reasons why one would want to consider preparing an Estate Plan. We briefly discussed the topic of a Business Succession Plan and received a lot of inquiries from business owners about what a business succession plan could do for them. Today, I’m going to elaborate on the purpose of a business succession plan and discuss the key reasons why every business owner should consider having a business succession plan in place.

A business succession plan determines what will happen to your business in the event of your death, incapacity or retirement. Similarly to how individuals should not want to pass away without a will or trust, successful business owners should not want to pass away without a business succession plan. In fact, it is just as important to have a well-thought out business succession plan to establish what would happen in the event you are no longer available due to death, retirement or incapacity, as it is to establish your personal will or trust to dispose of personal assets. Below you will find a few of the many key considerations to make when planning for your business succession plan:

What are your goals as the business owner:

First and foremost, you should identify your personal goals for your future income, level of involvement in the business, your investments both inside and outside of the business and the legacy of your future.

Who is capable of running your business?

Consider whether you will 1) transfer your business to your heirs; 2) sell the business to your business partner(s); 3) sell the business to a key employee; or 4) sell the business to an outside buyer.

This decision requires careful consideration. The conversations examining who the proper person to appoint should not take place last minute or under pressure. Deciding the best candidate to become successor of your business requires the sensitive, objective and knowledgeable counsel we will provide. We can also offer advice as to who should hold other key roles within the business, how best to structure the business for legal, corporate and taxation purposes, etc.

Do you need to establish buy-sell agreements?

Depending on your goals, a buy-sell agreement may be necessary. Buy-sell agreements are legally binding contracts used to reallocate portions of the business if an owner passes away, falls ill or expresses interest in selling his or her share. These agreements formalize information like a company’s sale price, the value of each owners’ share and ground rules spelling out who can or can’t be a buyer. A buy-sell agreement also reduces the risk of conflicts that could arise between family members or partners who may put their best interests ahead of the company’s.

How long will this transition take?

Many business owners do not wish to simply walk away from the business from one day to the next. The level of continued involvement desired by the owner must be identified. Further, everyone should be aware of the involvement that the business owner wants after he or she has handed off formal responsibilities. However, if you do not have control over when the transition takes place due to an unforeseen circumstance, it is essential to have all of your desires, goals and expectations in place.

Of course there are many other inquiries to take into consideration. Business succession plans are very detailed and specific to each individual owner’s needs and desires. If you believe you are in need of preparing a business succession plan, feel free to contact the Law Office of Ray Garcia, P.A., at 305-227-4030 or via email at legal@raygarcialaw.com. We believe it is best to be prepared for the unexpected, at times of uncertainty, you will always be at ease knowing that you and your family are well protected.