Choosing the Ideal Successor to Take Ownership of Your Business
Business succession planning is a crucial step for any business owner. You have probably put an enormous amount of time and effort into your company, and you want the business to continue to succeed after your retirement or death. A carefully designed succession plan gives you the best chances possible of avoiding problems during an ownership transfer. One of the most important considerations when building a comprehensive business succession plan is who you should choose as the new owner.
Selling Your Business to A Co-Owner or Employee
If you share your business with one or more partners, a natural successor may be one of your co-owners. Some partnerships choose to draft an agreement that permits the remaining owner to purchase a disabled or deceased owner’s business interests from his or her next of kin. This option can be especially advantageous if an owner unexpected passes away or becomes incapacitated through a major accident or illness. However, this option also requires co-owners to be prepared to buy out a partner's shares at a moment’s notice.
If you do not share your business with partners, or you do not think that any of your co-owners are the right choice for a successor, you may want to pass your business on to an employee. One of the main benefits of this succession route is that you can start preparing your employee for his or her new role well in advance. Money is typically the biggest concern for employees who are given the opportunity to purchase the business they work for. Seller financing, an arrangement in which the employee pays for the business over a period of time, could be a helpful option in this situation.
Choosing an Heir to Be Your Successor
Many business owners want their hard-earned success to stay in the family. Passing a business on to a child or other family heir is an ideal option for many, but it can also bring on significant complications. For example, if you have more than one family member currently involved in the business, disagreements and family drama can ensue over which family member is best suited to take ownership of the business. Do not make the mistake of assuming that a detailed succession plan is unnecessary if your adult child or another family member is positioned to take over your business. The more you have prepared for the future transition in ownership, the less likely the transition will negatively influence customers, employees, or the company's bottom line.
Outside Sale Succession Plans
Some business owners may choose to sell their business to an outside party upon their retirement. In order to do so, you will need to ensure that a business valuation is conducted accurately and frequently. If your business already has a proven business model and runs smoothly without your direct oversight, selling the business to an outside buyer can be your best option. However, it is impossible to know exactly what types of changes the new owner will make and how these changes will influence the long-term health of the company.
Contact a Fairfield County Business Succession Lawyer
Whatever your plans for succession, it is always best to work with a skilled business lawyer when building a plan for how your company will be run after you are no longer at the helm. At the Law Offices of Peter V. Lathouris, LLC., we have more than 30 years of experience helping business owners with a wide array of business-related needs. To schedule a free consultation with a knowledgeable Long Island Sound commercial and business law attorney from our firm, call us today.
Sources:
https://www.forbes.com/sites/groupthink/2014/05/14/how-to-write-a-business-succession-plan/
https://fitsmallbusiness.com/business-succession-planning/#