Business Succession Planning

Businesses should have strategies for when the owner retires, dies, or cannot maintain the ownership position. Such plans are essential to enforcing a smooth transition and business continuity. Succession planning is especially significant for small and family-owned businesses.

Company succession planning concerns preparation for the transfer of future business ownership, leadership, and control. A succession plan enables the business to fill roles effectively when the current holder is no longer there. The primary purpose of the succession plan is to ensure the company has the right leadership in place.

Importance of Business Success Planning:

It Quickens Adaptation of The Leadership Change
A company may not adapt first enough or maintain its efficiencies when a key player leaves or passes away. The instability of this change may become the bedrock on which the business fails. Business succession planning ensures there is a competent individual ready to fill the space left. Therefore, the company remains stable during the transition.
It Provides a Feasible Structure of the Change Process
A company succession plan also creates an orderly transition period. The succession plan provides a roadmap for businesses going through a merger or ownership changes due to death, selling, retirement, or unforeseen illness of the owner or CEO. It enables employees to embrace the change in management or leadership without feeling short-changed.
Employees can resist change. Many resignations happen during transitions in management because workers fear growth opportunities become limited because of the incoming leadership. A business succession plan makes provision for employee inclusion and assurance of the transition gains.
It Helps in Identifying Key Roles in The Company
Through business succession planning, companies can highlight key leadership roles of the outgoing leader and find a perfect match as the replacement. The person's skills, expertise, and functions are crucial for the company's optimal performance.
Therefore, the company knows what to look for when filling the vacant position.
Provide Grounds for Training
A vital aspect of company succession planning is evaluating employees with the potential of taking over the vacant position. It creates room for leadership training and skill improvement. The endeavor keeps the talent pool within the organization. Growing a successor in the company enhances continuity since the person is already familiar with the culture, personnel, vision, and mission.
It Reduces a Company's Tax Burden
Family business succession planning can benefit from a lower tax rate on capital gain taxation and lower valuations. Structured sales of interest, gifting, or inheritance of family-owned businesses can enjoy low tax rates under the current government administration.
It Maintains the Value of the Business Stocks and Assets.
A succession plan enables the company to evolve according to its business needs. If the change in leadership enhances uncertainty within the investor community, the company could lose its stock and asset value.

FAQs

How Do I Sell My Business?

The best way to sell a business is by having a succession plan. Company succession planning enables you to set timelines for the sale and succession, find the appropriate buyer, formalize the business' standard operating procedure, and outline how the buyer will purchase the business. The succession plan guarantees continuity-the incoming owner, existing employees, customers, investors, and other essential stakeholders see and know that the company has a future.

How Do I Buy a Business?

Familiarize with the succession plan to know the value, your expected leadership role, business culture, employees, customers, and other stakeholders. Company succession planning has a buy-sell agreement where the identified buyer agrees to take over the company in the event the owner dies, retires, is selling the business, or is unable to run the company.

How Do I Value My Business?

The value of any business is the product of assets minus liabilities. Anything that is convertible to cash is an asset.

Best Way to Sell My Business?

Business succession planning is the best way to dispose of a company through selling. It ensures the business maintains its stock and asset value and continues to thrive after the transition. It also provides continuity assurance to the stakeholders.

Is An ESOP (Employee Stock Ownership Plan) Appropriate For My Business?

ESOP is a great way to reward hard-working employees for their input. It also increases loyalty to the company since the employee owns part of the business. Therefore, they work hard to ensure it succeeds-even during succession through increased productivity and work performance improvement.

What's a Stock Redemption Plan?

A stock redemption plan entails business partners purchasing a life insurance policy equivalent to the stock under their control. The company pays for the coverage. When one of the partners dies, the remaining partners use the deceased death benefits to buy out their stock.

How do I Minimize My Taxes on a Sale of My Business?

One way to reduce taxes on a company sale is by structuring payments as installments. C and S corporations can reduce taxes by giving their employees ESOPs. Owners with capital gains after a sale can defer tax on the gain within the first 180 days of the sale.

Working with a professional advisor

At Turning Point Wealth Management, we have the expertise and experience to guide and assist businesses in developing company succession plans that work. You do not have to navigate this difficult process alone. Work with a professional that can review your options with you. Call us today!

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