Business Succession Planning

Business Succession Plan When setting up a business with multiple owners, one thing that a lot of small business owners neglect to think about is how they are going to leave the company. With a large corporation, there is a board and they vote for who is going to run the company and shares of the company are bought and sold to determine the owners. However, with a small business these transactions are usually not as straightforward. There are many reasons why an owner may leave a company and business succession will need to occur.

Some of these reasons are disagreements and one or more owners want out, retirement, passing the business to a family member, divorce (if owners are married), disability, or death. Each of these are common occurrences amongst small businesses and if thought about and planned in advance will lead to an easy transition. If the business succession plan is put into place early on in the establishment of the business, then it will be easier to navigate as the emotions of any of the aforementioned situations will be kept out of the decision making process. That being said it is also important to re-evaluate the plan from time to time as the business changes.

Some of the key components of a business succession plan are valuing the business, the negotiation process, funding arrangements, and designating successors or future owners to run the business after a business owner leaves. As a company grows, obtains more assets and hires more employees, it will be necessary to adjust how the business is valued and the investment of each partner is considered. The funding arrangements are an important component of the plan and could cause issues for the financial stability of the company. For example, if the departing partner(s) are forced to buy out the leaving partner with a large sum of cash, equal to their share of the successful business, issues could arise if the company does not have sufficient cash flow to accommodate that transaction as well as their current bills.

Determining the business succession plan ahead of time will help save time and money, should the situation arise. Contact one of our experienced business lawyers today to ensure all scenarios are planned for.