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Business Succesion Planning

Posted Monday, December 9, 2013 by Michael A. Larson

alt textMy practice is concentrated on business and real estate transactions with an emphasis on estate planning. Keeping an eye on personal financial goals while selling businesses, investing in real estate, forming partnerships and corporations and other endeavors is an attractive concept, because it incorporates a perspective on personal financial goals in connection with today’s business dealings. Because death or disability in and of itself is a more remote concern than today’s transaction, it is harder to engage in longer term business succession planning. In my experience, this planning for what might be considered a remote future event can be as important if not more important than the business or real estate opportunity that looms today.

The unexpected loss of a business owner or leader can have a lethal impact on a business. Often the spouse and family are not involved in the business. The business owner or leader has a world of knowledge essential to the success of the business and the sudden loss of that person can leave a business floundering. When this loss occurs, employees may come to work without direction, a lack of leadership emerges or the spouse or family member attempts to lead the team without the knowledge to do so, and opportunities and contacts with key business vendors and customers may be suddenly lost, are among many examples of the casualties of this situation. These events are not only crushing emotional losses, these events can lead to a financial loss as well. This can be compounded when an estate plan equally divides the estate, and family members jostle to control what they consider attractive assets, leaving the business and its employees struggling for clear direction.

Life insurance or savings to hire an experienced manager or consultants increases the chances of a successful transaction. Detailed thinking and putting a plan in place to run the business after the loss of an owner or leader can ensure this business or real estate asset will continue to be successful.

The succession plan should include a discussion with the family and key employees about the succession process. Company documents should include a clear succession plan. If an employee has an interest and capability to buy the business from the owner, a shareholder’s or owner’s agreement can be implemented to guide the process. An effort should be made to determine which family members are capable or interested in running the business. If they are not, they should be made aware of the key people in the business that will be apart of the succession plan. Then to avoid confusion or a change of intention by family members or other heirs, those plans should be incorporated specifically in the estate plan.

An operational summary should be developed to establish procedures, identify essential business information and assets, provide information on essential contacts and perhaps even provide sources for passwords to unlock electronic information that our world is increasingly dependent upon.

Establishing a business succession plan can be difficult considering the need to deal with everyday business opportunities and challenges. I encourage my clients to put business succession planning on their to-do lists. For those that encounter this situation unprepared, spouses and families will be extremely grateful that a succession plan was established.

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of vital or central importance; crucial