3 steps to business succession
3 steps to business succession planning
Step 1. Clarify your business needs by looking at the 5 factors to consider in your exit strategy planning.
- Your business future potential
- Your financial liquidity needs
- Your future role in the business
- Your industry business outlook
- Your investors / funders expectation
- Key question is “does your successor come from family, inside your business or outside parties” ?
Step 2. Develop a Succession Plan
Planning succession in advance helps you to prepare and train potential successors for an important role within your business. Succession planning becomes particularly beneficial if the business owner suddenly becomes ill or disabled, as the business can still continue.
Whether it is your intention as the business owner to pass on your business to your family, or sell to your partner or employee, having a formal succession plan will:
- help maximise the return on your investment
- ensure a smooth transfer of ownership and control
- minimise disruption to business operations.
Step 3. Insure your Business Worth
Invest in life, savings or disablity insurance as it is equally important for the business owners and protect the business, partners and employees interest in different triggering circumstances.
- Retirement Insurance – to receive lump sum or annuity payments during retirement of a employee.
- Disability and Life Insurance – to protect employee or business owners in unexpected events.
- Cross purchase agreement– to arrange purchase of life insurance for each partner and to use insurance proceeds to fund the purchase of the deceased partner’s ownership share. This allow deceased family receive the agreed business value while the surviving partner can continue the business.
Whether you are selling your business, transferring ownership, retirement, or a “involuntary exit” such as illness, disability or liquidation – planning your exit strategy has implications on employees, business structure, its assets, and tax obligation.
To some, an exit strategy sounds negative. Actually, the best reason for an exit strategy is to plan how to optimize a good situation. It is important to engage with your partners, family members, employees and communicate your intention. Seek different advice from accountant, lawyer or business consultant. That way, you will be sure that you have explored all the options available to you.