Owning your own business can be challenging but can be rewarding as well once all of your hard work has paid off. If you have worked hard at running your own business, you will definitely want to make sure the business is in good hands when you finally decide to retire or if you happen to pass away unexpectedly. There are several ways people commonly plan for succession for their business.
Include in your estate plan
One of the first things you should consider doing, even if you are not even close to retirement age, is include a succession plan for your business in your estate plan. This can be done through a will or a trust, depending upon your estate planning strategy.
Sell business to a co-owner
Another option for planning succession for your business is to sell the ownership of your business to another co-owner. You can specify in your partnership agreement that if in the case of your death that your partners in your business will purchase your ownership in the business from your heirs.
Choosing an heir to your business
Many business owners prefer to choose an heir who will take over ownership of your business once they have passed away. This can help ensure your family is provided for after you have passed away. If there is a family member who is already a part of the business, then choosing who to pass the business to might be straightforward. However, if more than one family member is a part of the business, your decision may be a bit more challenging and can take more consideration.
Sell the business to an employee
Similar to selling the business to a co-owner, you may also want to sell the business to a key employee. Ideally, this would be an employee who has thorough knowledge of how the business operates and the industry the business is involved in. You should also choose an employee that is well-respected by the rest of the staff. However, this may be challenging if your key employee does not have the finances necessary to purchase the business.
Find an outside party to buy the business
If you do not have any heirs or employees that you think would be suitable business owners and you do not have any business partners, you may want to find an outside party who may want to purchase your business. This could be another entrepreneur in the same industry or another competing business. It could even be a person or company in a tangential industry.
Integrating business succession into financial planning
Of course, planning for the succession of your business is just one part of what you need to do for effective family financial planning and estate planning. You will want to take into consideration your other wealth management goals in order to fit succession planning into your overall strategy to build generational wealth. This will entail a comprehensive understanding of applicable property laws, tax liabilities and various expenses your heirs will encounter. A competent wealth management professional will have the knowledge and experience necessary to help you decide the best path to take.
Any opinions are those of the author and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.