What if something occurs to you, and you can no more manage your business any longer? Who will then carry forward your business, and will it be bring about the way you want? Establishing a comprehensive business succession plan aids to safeguard that your business gets handed over more easily.
According to Jeffrey Mohlman, business succession planning, also identified as business continuation planning, is about planning for the maintenance of the business after the withdrawal of a business owner. A clearly expressed business succession plan stipulates what happens upon events such as the death, retirement, or disability of the owner.
A good business succession plans generally include, but not restricted to:
- Goal articulation, such as who will be sanctioned to own and run the business;
- The business owner’s disability planning, retirement planning, and estate planning;
- Process articulation, such as whom to handover shares to, and how to do it, and how the transferee is to deposit the transfer;
- Analyzing if existing investments and life insurance are in place to provide assets to facilitate ownership transfer. If no, how are the breaches to be filled;
- Evaluating shareholder agreements; and
- Assessing the business strategy and environment, management capabilities and deficits, corporate securities.
Why should business owners like Jeffrey Mohlman consider business succession planning?
- The business can be transferred more efficiently as possible obstacles have been predicted and addressed
- Income for the business holder Mohlman through insurance policies, e.g. continuing income for critically ill or disabled business owner, or income source for family of departed business owner
- Reduced chance of forced liquidation of the business due to permanent disability or sudden death of business owner
For certain mechanisms of a good business succession plan to work, capital is required. Some mutual ways of backing a succession plan include internal reserves, investments and bank loans. Nevertheless, insurance is usually preferred as it is the most operative solution and the least expensive one compared to the other possibilities. Life and disability insurance on each owner guarantee that some capital risk is transferred to an insurance company in the event that one of the owners passes on. The proceeds will be utilized to acquire the deceased owner’s business share. Proprietors may select their preferred ownership of the insurance policies by means of any of the two arrangements, “entity-purchase agreement “or “cross-purchase agreement”.
What Happens Without a Business Succession Plan?
Your business may go through serious consequences without a proper business succession plan in the event of a permanent disability or an unexpected death. If the business is shared among business owners, then the outstanding owners may fight over the shares of the passing business owner or over the proportion of the business. As Jeffrey Mohlman says, do not let all the business you have built up breakdown the moment you are not there. Planning ahead with a good business succession plan before a premature or unexpected event happens can help secure your business legacy, safeguarding that you and your family’s future will be very well taken care of.