Are You Ready to Pass on Your Business?
You have spent years creating a company. You have put in sweat, money, time and energy into building a legacy for your family and community. But now it’s time to hand over the reins. Are you ready? The Baby Boomer generation is in the process of retiring. They are taking with them 30 to 40 plus years of knowledge, experience, working relationships, and information. How can this be captured?
Succession planning is not merely putting a plan down on paper – it is acting on that plan and implementing employee development that is necessary for a smooth transition. By creating a proper succession plan, you are able to retain superior employees who appreciate the time, attention, and development you are investing in them. You create employees who are motivated and engaged when they envision a career path for their continued growth and development. Knowing a new role that awaits them not only boosts your employee’s self-esteem and self-respect, but it also enhances their efficacy and value as an employee.
Many steps that must be taken in order to create a proper succession plan. You must first look at the culture of your business. Who makes most of the decisions? Do family interests supersede the interests of other employees? Do you involve key employees in the vision for the business and delegate some of the decision making? Are management appointments based on merit? Are decisions made without reference to family influences?
The next step is to determine whether your business can even survive your departure. If the answer is yes, then you need to create a succession plan for ownership, management and equalization. If the answer is maybe, a succession plan and an alternate liquidate plan is required. And if the answer is no, you must create a liquidation plan. Then you must determine the worth of your business and how a potential sale will be funded. If you are passing ownership on to family members or key employees, do they have the capital to make this kind of purchase?
If ownership of the business will remain in the family, what does this look like? How involved have family members been thus far? Do they have good relationships with your employees and the business community or is goodwill based solely on your personal skills? If the answer is the latter, you must determine how you can shift this to your successors.
One of the most important things to determine is your income needs in retirement and how is it going to be met following your departure. Are you going to continue drawing income from the company or will your entire interest be sold? What are your spouse’s income needs in the event of your death or disability? Life insurance plays a pivotal role in succession planning. It is one of the best tools for funding a buy-sell agreement and can also be used to replace wealth that is ether consumed during your lifetime or will be consumed upon your death by estate taxes, income taxes, and expenses of estate administration. It can be used to provide income for your family members who have no means or ability to be self-supporting, or it can be a way “equalize” the inheritances between active and inactive children.
By creating a proper succession plan, you are able to ensure that your legacy is carried on and your family is taken care of.
Contact us today if you have questions about this topic or if we can assist you with your Succession Planning needs.