A succession plan is an essential step in the life cycle of your business. At some point, you will need to think about selling your business, and you can’t prepare for that properly without some kind of plan.
Plus, the earlier you plan, the better. A succession plan not only comes in handy for the day when you are ready to pass the business on to someone else, but it can also smooth transitions that may otherwise be more abrupt, like needing to sell the business due to unexpected medical issues. In either case, the earlier you start, the better.
There’s no bad time to start on succession planning, but we recommend at least a couple years before you intend to sell the business. The more time you give yourself, the more you’re able to thoroughly analyze your options and feel confident in your decisions. Even if you end up crafting your business succession plan years in advance, you can always revisit your plan and adjust as things change in your business.
Some of the questions you’ll want to answer in your succession plan include:
- Who will have control of the business?
- Will I retain income to fund my retirement?
- Are we satisfying estate planning objectives?
- How will the company continue to run?
- Does the plan support the workforce?
- Will the business remain at its current location?
- Does the succession plan reduce transfer and income taxes?
- Does it provide for liquidity?
- Who will pay estate taxes?
You also have many options for how to sell your company, including:
- Asset sale
- Stock sale
- Sale to an Employee Stock Ownership Program (ESOP)
- Selling to employees/family
Every one of these options involves tax and non-tax issues. A comprehensive succession plan will help you anticipate those issues proactively.