Many small and medium business owners don't have a succession plan in place. Small business owners are often understandably focused on the day-to-day operations of their business, or they are reluctant to think about what will happen to their business in what might seem like a distant future when they are retired or have passed away. Making plans to hand over the reins of their company to someone else may seem unnecessary, even painful. Or perhaps the steps involved in creating a succession plan for your business feel overwhelming.
However, if you or your family owns a small business, it is important to have a succession plan in place. By developing a business succession plan, you can:
- Help to ensure the longevity of your business
- Identify potential leaders as the business develops
- Protect your family from unnecessary conflict and costs
- Minimize estate and income taxes
- Plan for your own retirement
- Maintain control over what happens to your business in the future
Even though many small business owners want to pass their business on to family members, only a small percentage actually do. Without a succession plan in place for your retirement or an unexpected event such as illness, disability, or death, your family may be forced to sell the business. If they are able to keep the business, they may struggle unnecessarily due to the lack of a clear plan and leadership.
Regardless of if you hope to someday pass your business on to a family member or sell it to an employee or other party, it is important to acknowledge that nobody can run their own business forever. One day, your business will have to transition into other hands. Most small business owners put a huge amount of time, energy, and resources into building, sustaining, and growing their businesses. A succession plan can help to ensure that your life's work can survive even after you are no longer able to personally run the company.
When to Make a Succession Plan
It's difficult to plan for the unexpected. Without a succession plan in place, business owners can find themselves in a bind when a medical emergency, disability, or even a divorce makes the status quo impossible to sustain.
The best time to make a succession plan is when you start a business. Over time, you can and should amend your succession plan to reflect the changing needs and goals of your business.
What to Include in a Succession Plan
Every business will require a unique and customized business succession plan that fits both the needs and long-term aims of the business and your own needs and desires as a business owner. Nevertheless, there are a few overarching elements that any business succession plan should have, including:
- Anticipated timing of transition
- Possible successors
- Value of the business
- Forecast of business challenges for next 5 years
- Critical information to implement transfer
- Tax planning
- Contingency plans
At the Law Offices of Kent W. Keating, we are dedicated to helping people ensure the prosperity of their businesses in the long term. Our business succession planning attorney has over 35 years of experience and a deep understanding of both business law and estate planning. We can help you build a succession plan customized to your needs.
Do you own a business in California? Contact us today at (805) 225-9058 to discuss how we can help you develop a robust business succession plan.