Business Succession Planning

Business succession planning is an important part of a successful business, especially for owners who are nearing retirement. By planning who will succeed you in your business, you will make a smoother transition and keep the company growing and healthy upon your retirement or departure from your business. Some business owners choose to liquidate the assets and close the business when they decide to retire while others want the company to continue without them.

If you decide your business should continue, an important step in business succession planning is choosing the person who will continue the business…your successor. You may choose a family member, employee or other individual to take your place. Deciding who will succeed you, in advance, will keep things simple when it is time to make the transition and your successor will understand your expectations. Your employees will feel secure about the future of the company because you planned for the continuation and future leadership of the business.

Business owners choose their partners, but they can’t choose their business partners heirs. If others own a controlling interest in the business, those partners aren’t likely to welcome the deceased business owner’s heirs as active participants in the business. If the deceased business owner does not have a sole or controlling interest in the business, the best alternative is to sell the business interest to the surviving co-shareholders under a buy-sell agreement, funded by life insurance.

Business owners should also plan for the loss of a key employee. A “key employee” could be the owner, another leader on the executive team or anyone else who is crucial to your business operations, such as a top producer or a business development associate with deep relationships. The primary purpose of key person life insurance is to protect your business against financial loss if a key employee dies.