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Creating a Business Succession Plan

Sept. 20, 2021

An astounding 67% of North American family business owners don’t have a plan in place for what happens if they retire, become incapacitated, or pass away. So much of running a successful business relies on solid planning. Why not plan for what happens when you are gone?Two store owner partners stand side by side

A business succession plan should be as much a part of your estate plan as documenting who gets the house and the family heirlooms. It also requires more time to prepare the future leadership of the business than filling out a title-on-death transfer for the car. If you want to be the one who decides what happens to your business when you are not there to run it, instead of leaving a legacy of legal battles for heirs, you should put that plan in place now.

At Redmond Law Group, I have been helping clients for 15 years in Troy, Michigan, and throughout Oakland and Macomb counties plan ahead for the inevitable. You have always had to make difficult decisions to build your business. It is time to make a few more or others will make them for you.

Why Is Having a Business Succession Plan Important?

There are some key reasons why you should have a business succession plan:

  • It prevents your business from falling into the hands of people you don’t want it to. Without a plan, decisions will be made by others who may not have the same loyalties to the business and your family as you do.

  • It gives you time to train your successor while you are still here to do it. Prepare the next person who will run your business to take over those weighty responsibilities. You can pass along your values at the same time.

  • Closely held family businesses are particularly difficult to separate from the personal assets of an estate. That can lead to heirs paying taxes, such as income, gift, estate, and generation-skipping taxes, that might have been avoided or limited with careful succession planning.

  • A business succession plan can provide you with retirement income or income to care for you should you become incapacitated.

What Types of Business Succession Plans Are There?

There are two basic ways you can plan for business succession.

The plan can pass the business on to children or other heirs. You can decide which heir or heirs you want to lead the company. For those who prefer to not work for the company, you can specify profit-sharing or buyout plans by those heirs who do.

The second primary way is to sell the business. This offers a way to have your business continue even if no one in the family wants to be part of it. Your plan can detail terms for its sale to some loyal employees. If you have partners, you could sell your equity to them. Or you could sell the business to a competitor or other outside party who wants to buy it. The succession plan should provide for what happens to the sales proceeds; for example, dividing them between heirs or donating them to charity.

What Should a Business Succession Plan Include?

The type of business you own will dictate the number of documents and details the plan needs; however, there are some general elements in every plan:

  • A valuation of your business (This should be kept current with frequent updates.)

  • A list of leadership successors, their qualifications, and necessary training and support

  • A timeline and procedure for succession of ownership and management

  • The company’s policies and procedures, handbooks, and other operating documents

  • Funding mechanisms for the succession

  • Instructions for distribution of proceeds should the business be sold

Getting the Experienced Legal Guidance You Need

The business plan you put together to get a start-up loan for your business may pale in comparison to the decision-making required to pass it along to someone else. Although there are a tremendous number of details to consider and document in a business succession plan, the time and effort you invest now will result in a smooth transition when you are gone. This is, after all, a major part of your legacy.

An experienced business and estate planning attorney can help you craft a business succession plan as part of your overall estate plan. At Redmond Law Group, I have been helping business owners, like you, navigate the process for more than 15 years. Join the clients in Troy, Michigan, and in communities throughout Oakland and Macomb counties who have relied on and trusted me to help them with their legacies.

Don’t let others decide what happens to your life’s work when you are gone or unable to run your business. Call my office now.