When you own a small business, planning for what should happen to it if you die unexpectedly is just as important as planning for your personal property and assets. Even if you don’t plan to pass the business on to a family member, not having a succession plan could impact your personal estate and the inheritance you hope to leave to your children or charities. The Estate Planning and Asset Protection team at Ross & Shoalmire PLLC can help you create a business succession plan that works with your Estate Plan to protect what you have built for the future of your business and for the benefit of your heirs.
What Should a Succession Plan Look Like?
As you run your business on a day-to-day basis, it’s likely that the last thing on your mind is what would happen if you suddenly weren’t there. You are concerned with profit margins, managing employees, expanding your operations, and providing excellent customer service, not your own death or incapacitation. However, just like it’s important to have an Estate Plan to protect your family, it is also important to have a business succession plan based on the certainty that you won’t live forever. A typical small business succession plan might include the following:
- An overview. This document should provide details about the overall plan and under what circumstances it should be implemented. It should also list contact information for your lawyer, accountant, and other important parties.
- A list of potential successors. Names and contact information for your potential successors, in the order you would prefer they be considered, should also be included in the plan.
- Standard operating procedures for your business. Having copies of important legal documents, contracts, handbooks, training guides, and a standard operating procedure document will make the succession process go more smoothly.
- A valuation of your business. This is probably the most important part of your succession plan. Before your business is transferred or sold, a current and accurate valuation is necessary.
Similar to the role a Last Will and Testament plays in your personal Estate Plan, your succession plan reveals your wishes and provides instructions when you are unable to do so yourself.
Options for Transferring or Selling a Business Upon Your Death
How you want your business—or the portion of a business you own—dealt with when you die will depend on many factors, and these factors could change over time. A succession plan you create early in the life of the business might not apply in later years. That is why these plans need to be reviewed and revised every few years. Some options you have for succession include:
- Passing onto an heir. Ideally, a family-run business is passed onto an heir who has expressed interest in taking over the business. This plan might involve concessions for other heirs in a personal Estate Plan, given that one heir is inheriting the business, but with advance planning, potential complications can be avoided.
- Selling to a co-owner. If the business has more than one owner, a plan can be put in place for the surviving owner or owners to buy out the deceased owner. This can be handled with a buy-sell agreement that uses life insurance policies on the owners to provide the funds necessary for the buyout.
- Selling to an employee. When there are no partners and no family members to take over, a key employee could be trained and prepared to buy the business upon the owner’s death. This would also require a pre-arranged buy-sell agreement.
- Selling to an outside party. When there is no internal successor to take over the business, the succession plan could be simply to sell the business upon the death of the owner, with the proceeds going to their heirs. It’s important that an accurate valuation is done so that the person tasked with making the sale knows what it’s worth.
Our business succession attorney will take the time to understand the goals and desires you have for your business and will help create a plan that meets them.
Are You Looking for an Asset Protection Attorney in Texarkana, TX?
If you are looking for business succession advice, you need to speak with an experienced asset protection attorney as soon as possible. Contact us online or call our Texarkana office directly at 903.223.5653. We also have offices in Tyler, Paris, Longview as well as Magnolia, AR!