When a business is built and designed, business owners seek long-term continuity in it. The business may be a new venture or an inherited one, but the driving force behind each business is the desire of the individual to enforce his identity and expand his horizons. Even when the business is at its pinnacle or the owners are nearing retirement, it is imperative that they contemplate on the legacy they would want to leave behind. It is also important that they consider the employees that are a part of their concern. And considering it as a mandatory part of running a business, and to safeguard negative setbacks that could be caused by their exit, business succession planning is a must for business owners.
Learn more about The Importance of Succession Planning
What are the underlying concerns essential for succession planning?
There are certain crucial aspects which are considered while preparing a simple yet effective succession plan for the business. These aspects are:
- Continuance: The owner has to decide whether the business will be dissolved after his death/ retirement and the assets get liquidated or will the business continue and be passed on to an inheritor.
- Now, if it is decided that a business will continue, the next part of the succession plan involves choosing a successor.
- Selection of a Successor: The successor may be a family member, a top-notch employee or any other person that will become the next owner. If it is already decided beforehand and included in the succession plan, the business is likely to sustain any setback.
- Debt Repayments: While running a business, the company may have opted for some loans or credits. It is essential that a succession plan includes how the debts would be repaid when the time comes. It should also clearly include the assets which would be used for the loan repayments.
- Tax Management: It is also discretionary that while formulating the succession plan, strategies that may result in minimized taxation impacts when the ownership of the company is transferred, be considered.
After contemplating these aspects, the succession plan should be properly documented and registered with a skilled attorney, for immediate effect after the exit of the owner.
How beneficial is a succession plan?
Succession plan ensures the uninterrupted transition of the business in case of the owner’s death or retirement. If the business is a partnership, then the share of the partners to be transferred in case of their death or retirement does not cause any hitch or legal complications.
A well-formulated succession plan involves not only certain decisions taken by the owner but also includes the expertise of tax advisors, accountants, attorneys to decide the most optimal methods of transfer of ownership, tax management, ascertaining the value of the business and life insurance policies.
Succession plan for business owners is essential so that a business does not suffer any setback and keeps running smoothly even after the death of the owner. The development of a succession plan involves many features which should be worked upon with the help of skilled advisers. Do you need professional help? Contact our service professionals at Flagship Financial.