Business owners deal with a unique set of challenges. One of these challenges is succession planning.  A succession plan is the process of the transfer of ownership, management and interest of a business.  When should a business owner have a succession plan?  A succession plan is required through the survival, growth and maturity stages of a business.  All business owners, partners and shareholders should have a plan in place during these business stages.


This infographic checklist was created as a guideline, highlighting the main points to be addressed when starting to succession plan.


Needs:

  • Determine your objectives - what do you want for you, your family and your business (i.e., business’ financial needs)?
  • What are your shares in the business worth (business value)?
  • What are your personal financial needs - ongoing income needs, need for capital (ex., pay off debts, capital gains, equitable estate, etc.)?

There are 2 sets of events that can trigger a succession plan: controllable and uncontrollable events.


Controllable events


Sale:  Who do you sell the business to?

  • Family member
  • Manager/Employees
  • Outside Party

There are advantages and disadvantages for each - it's important to examine all channels.


Retirement:  When do you want to retire?

  • What are the financial and psychological needs of the business owner?
  • Is there enough money?  Is there a need for capital to provide retirement income from redeeming or freezing shares?
  • Does this fit into your personal financial/retirement plan?  Check tax, timing, corporate structures, finances and family dynamics (if applicable).


Uncontrollable Events


Divorce:  A disgruntled spouse can obtain a significant interest in the business.

  • What portion of business shares are held by the spouse?
  • Will the divorced spouse consider selling their shares?
  • What if the divorced spouse continues to hold interest in the business without understanding or contributing to the business?
  • If you have other partners/shareholders - would they consider working with your divorced spouse?

Illness/Disability:  If you were disabled or critically ill, would your business survive?

  • Determine ongoing income needs for you, your spouse and family.  Is there enough?  If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?
  • Will the ownership interest be retained, liquidated or sold?
  • How will the business be affected?  Does the business need capital to continue operating or to hire a consultant or executive?  Will debts be recalled?  Does the business have a savings or insurance program in place to address this?


Death:  In the case of your premature death, what would happen to your business?

  • Determine your ongoing income needs for your dependents.  Is there enough?  If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?
  • Will the ownership interest be retained, liquidated or sold by your estate?  Does your will address this?  Is your will consistent with your wishes?  What about taxes?
  • How will the business be affected?  Does the business need capital to continue operating or to hire a consultant or executive?  Will debts be recalled?  How will this affect your employees?  Does the business have a savings or insurance program in place to address this?

Execution:  Besides having a succession plan, make sure you have an estate plan and buy-sell/shareholders' agreement.  A succession plan is complex, we suggest that a business owner has a professional team to help.  The team should include:

  • Financial Planner/Advisor (CFP)
  • Succession Planning Specialist
  • Insurance Specialist
  • Lawyer
  • Accountant/Tax Specialist
  • Chartered Life Underwriter (CLU)

Next steps...
 Contact us about helping you get your succession planning in order so you can gain peace of mind that your business is taken care of.