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Every
business owner knows that building a successful company
requires dedication, commitment and hard work. Once a
company is established, business succession or business
continuation
planning becomes an essential part of the process to
assure future continued grow. Business succession planning
addresses
all potential contingencies that may affect a business
or business owner including retirement, sale of a business
interest, disability or death. With prudent planning,
a business can be assured that funds will be available
to
provide flexibility in the event of retirement, disability
or death of a shareholder or sale of a business owner’s
interest.
 Business
Succession Facts and Statistics
Important
Questions for Business Succession Planning
Components
of a Sound Business Continuation Plan
Business Succession Facts and Statistics
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On average, 45% of the business owner’s
net worth is tied up in the business. (LIMRA International,
Small Business Owners 2005 Report) |
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Many business owners want to pass the company to the
next generation. (Families in Business. NFIB National
small Business Poll, 2002) |
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Only 26% of small business owners have some type of
succession plan in place. (LIMRA International, Small
Business Owners 2005 Report) |
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Fact: Many business owners are depending on the value
of their business to fund their retirement. |
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Less than 30% of family owned businesses survive to
the 2nd generation and less than 12% to the 3rd generation
with only a 3% survival rate to the 4th generation. (Joseph
Astrachan, Ph.D., editor, Family Business Review) |
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The leadership of 39% of family-owned businesses will
have changed hands in the next five years. (Raymond Institute/Mass
Mutual, American Family Business Survey, 2003) |
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19% of family business participants have not completed
any estate planning other than writing a will; only 37%
have written a strategic plan; and over 60% are very
positive about their company’s future. (Raymond
Institute/Mass Mutual, American Family Business Survey,
2003) |
 Important Questions for Business Succession Planning
Before any formal planning can begin, every business owner
must address the following questions.
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What are the business owner’s personal
goals? Will they retire, sell the company, or continue
to run the company part or full time? |
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Are their any special family circumstances with the
transition of the business? |
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Does the business owner want to gift the company
to the next generation? Sell it to the employees or to
a third party? |
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What is the business owner’s desire if he or
she dies or is disabled? |
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Where will the funds come from to provide retirement
income to the business owner or to buy their ownership
interest? |
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What is the value of the business? (See,
Determining the Value of a Business) |
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Can an outside buyer for the company be easily located? |
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What are the potential tax consequences of any of
the above alternatives? |
Components of a Sound Business Continuation Plan
A sound business continuation plan includes:
1.
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Clearly defined goals of the shareholders
or business owners. |
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An accurate business appraisal or valuation. |
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Identification of the appropriate measures to minimize
business risk and protect the company’s reputation
and position. Examples include key employee insurance
and executive benefits packages. |
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A realistic assessment of the “market” for
the business in the event of a sale. |
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Establish a formal written agreement commonly referred
to as a buy-sell agreement that will set in place the
directives for the plan. |
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Funding vehicles such as life insurance and disability
policies used to provide the liquidity needed if death
or disability occurs or if an owner retires. |
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A formal process for periodically reviewing and updating
the plan. |
When establishing a business succession or business continuation
plan, each business owner’s estate plan should also
be carefully reviewed. Critical business succession decisions
will be influenced by their impact on the individual estates
of each owner. For additional questions regarding business
succession planning or estate planning, please
call MEG Financial at (877) 583-3955 or complete a simple online question form
now.
Other Business Continuation Topics of Interest:
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