Change of business ownership can happen for all sorts of reasons. Sometimes, the choice is taken out of your hands, and in other situations it may be something that you have planned for all along.
When it comes to business succession, it is vital that you have considered the plan, and what is going to happen if you do need to move on. In this guide, we provide something of a checklist to ensure that you have considered everything you need to when it comes to moving your business on. Some of the aspects will need a deeper dive into the details, of course, but business succession is a complex proposition.
Set Specific, Long-Term Goals for Ownerships
Who do you want to own the business in the long term? If you have a sustainable business then you might want to ensure there is a real responsibility to future owners. Alternatively, you might have a family business and want to know it is going to stay that way in the future.
Setting out your goals for ownership will help you in the future, ensuring that you don’t end up making bad choices.
Determine Your Business’s Valuation
Before you really know what you are dealing with, you should work out how much your business is worth. Without a dollar value, it is very hard to apportion a company, divide it up, or work out who owns what. If you are a publicly-owned business with traded stock then this becomes even more of a big deal.
You can value the business yourself, along with any partners, but that doesn’t mean the business is automatically going to fetch that price. Many accountants also offer valuation services.
Different industries have different norms when it comes to valuation, often based on profit, stock held, and many more nuanced financial considerations. In a big business with a lot of people involved, it is usually best to use a specialist.
Seek Out High-Quality Legal and Tax Advice
There are many smart methods of passing your belongings on to others. If this is in the event of a death, then an estate planning attorney knows how you can pay minimal taxes on passing on your inheritance, and what legal protection you are entitled to.
Without the right advice, you might not make the best decisions and you might make a number of mistakes.
The same is true if you are selling a business, there are sensible ways to structure and arrange the finances. This isn’t about ‘dodging’ taxes, it is actually about making sensible decisions and making deals in a way that suits you. It’s worth having great legal and tax counsel even if you have no desire to get rid of the business.
Prepare All the Documents and Design Workflows
You can make things easier by having documentation ready to go, as well as workflows on how you are going to exit a business. For example, it is possible that you will have a lot of different aspects of the business you are involved in, and need to educate potential buyers or inheritors about.
On top of that, there will be documentation relating to a sale or to an inheritance. If you plan to sell your business, then you can get a lot of these documents prepared, as well as a workflow or ‘action plan’ for actually leaving the business and passing it on to someone else.
Plan the Exit Strategy
What is going to happen when the time comes? What is your exit strategy? Forward planning doesn’t only help your successor when the time comes, but it can also make a business more valuable.
Pick a Succession Plan and a Successor
There are a number of different types of succession plans, and who you want the business to go to is a big part of this. Your successor may well be a business member, especially if you are considering what will happen to your business when you pass.
Passing Your Business Onto an Heir
Have you allocated someone to take over the business when you die? Working with an estate planning professional can help you to establish what is going to happen. For example, will there be multiple family members involved? Will they get an equal share? A financial plan can make it easier to transfer the assets, and make the life of an executor of a will much more simple.
Succeeding generations commonly take on a business, but this doesn’t happen without some significant forward planning and usually professional help.
Selling the Business to a Co-Owner
If you have a co-owner in the business, then there is a chance they may wish to carry on regardless if you die. Cross-Purchase Agreements are a way to structure a deal where partners within a business own policies that cover the other partners. This means if one dies, the policy, akin to insurance, will pay out and buy the deceased partner’s share of the company. The price has to be agreed upon beforehand.
Selling Your Business to an Outside Party
Turned your business into a profitable asset? You might want to work out how saleable it is. It is possible that you will be approached out of the blue, or you may be able to actively sell your business by seeking out a buyer.
If you are going to sell your business, then the succession planning is about far more than just establishing how you will pass the business on to others. It could be about extracting yourself, your skills, and your management out of a business. Many owners are still actively involved day-to-day.
A business is more saleable if it has clear records, and structures in place that don’t rely on the owner. If you try and sell a business within which the owner is driving most of the sales, it is unlikely you’ll find such a willing buyer. Prepare documentation, training, and legal formalities ready for a potential buyer and be prepared for negotiations regarding the price and the details of the sale.short url: