Effective Business Succession Planning
Dec 4, 2019
Lucas Salerno, Lincoln Financial Advisors

Business owners invest significant amounts of time and financial resources to make their enterprises successful. Because of the quick pace of day-to-day operations, planning for succession of ownership is relegated to a low-priority task. But there comes a point in the lifecycle of any business when the owner is no longer able to manage the firm. 

Because the timing of death or disability is difficult to predict, it’s prudent to have a succession plan in place now to safeguard your family’s financial wellbeing, and to provide your business with leadership during a transition.

Many owners look to keep the company in the family with children, while some prefer a third-party purchase or buy-out from their management team. Whichever you eventually decide is right for your business, there are steps you can take now that will ease the transition.

  • Groom new management. Who is best able to run the business in your absence? Whether it’s children in the company or your existing management team, make your intentions known. 
  • Determine a value. Work with a valuation specialist to get a fair assessment of what your business might be worth. While valuation analysis may be an art as much as it is a science, you should place a value on your business in the event you decide to sell. 
  • Draft a buy-sell agreement. Depending on the structure of ownership, this document will be a binding agreement detailing the terms of ownership transfer between you and any business partner(s). Be sure to specify how the agreement will be funded. 
  • ESOPs. Another option is an Employee Stock Ownership Plan (ESOP), whereby a bank lends money to the ESOP to purchase your interest in the business, and the employees then buy the shares through regular payroll deductions. 

Planning for succession can be an unpleasant task, although the outcome can be even more unpleasant if you fail to plan. You’ll have a lot more options if you start to plan when things are going well. 


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