As a small business owner in DuPage County, your immediate concerns probably center around positive cash flow and stability with your balance sheet. Since you are focused on the present and near future, planning for retirement or how to hand the business over to someone else is likely a lower priority. However, it is important to establish a business succession plan, especially if you are nearing retirement age. The idea of coming up with a business succession plan can seem daunting, but it does not have to be. An experienced business law attorney can advise you on the best course of action for your particular situation and ensure that you have long-term plans in place.
Determining Your Business’s Worth
When deciding what to do with your business in the future, determining your business’s value is important. Business valuations can be completed by a certified public accountant (CPA), or all business partners can come to an agreement on what the business is worth.
There are several common ways that ownership of a business can be transferred. These methods include:
- Passing the business along to a family member or other heir.
- Selling your business to someone outside and independent of your organization.
- Selling the business to a key employee or a co-owner.
- If your business has multiple owners, selling your interests back to the company, which can distribute them to the other remaining owners.
While you can sell a business, many owners would prefer to have their business be run by a family member. You do not have to name just one family member; you can opt to pick several family members who have different strengths. Depending on your family and the choices you make, it is not uncommon to have family members who resent not being chosen. This could create some family drama and hurt feelings that you should be prepared for.
If your business has multiple partners, you should consider purchasing life insurance on all partners. If a partner should pass away before ending the business relationship, the death benefits can be used to buy out the decedent’s business shares and transfer them to the remaining partners.
Steps in Creating a Business Succession Plan
When planning for business succession, you should start by determining what your goals and objectives are. Do you have a current succession plan in place? Are your goals reasonable and attainable? You should decide on the importance of continued family involvement, considering whether it would be better to bring in professional management. You should have a plan in mind to determine how much cash flow you will need to meet your retirement goals.
Next is to establish a decision-making process. Be sure to specify how disputes will be resolved, put your succession plan in writing, and communicate that plan to your family and stakeholders. You should identify your successors, including both owners and managers. Name what active and non-active roles your family members will play.
Ensure your plan addresses important topics like tax implications. Looking into estate planning details is important, as this can help minimize taxes and avoid any delays in transferring stocks or ownership shares. Consider different options on how to handle the transition. Will it be a gift, a purchase, or a combination of the two? If a purchase is involved, you should consider financing options and establish a timeline for implementing the succession plan.
Contact a DuPage County Business Law Attorney
Creating a business succession plan is important, and it can be a complex process. It is important to seek assistance from a skilled DuPage County estate planning lawyer who can help you protect your business. Contact Momkus LLC today at 630-434-0400 to schedule an initial consultation.