Are you a business owner without a succession plan? Does the thought of planning for what might happen to you in the future scare you? Most business owners don’t want to think about what might happen at the end of their business.
However, it is important to realise that no matter who you are and what business you are in, you will, at some point exit your business. For this reason, you need to consider what legal steps you need to put in place for your business.
Succession planning
At some point, you will need to exit your business. This could be for a variety of reasons including that you may:
- die
- become incapacitated
- decide to sell your business because of a family illness
- decide to sell the business and do something else
- be approached by an investor or another business that wants to sell your business
Not having the right strategy in place to protect your business and not having a succession plan can cause significant issues at a time when you or your family are already stressed by other circumstances. These events may also cause unintended consequences.
For instance, if you have a business partner with no business succession planning in place, you may find yourself in business with that person’s family. While you may like or sympathise with the family, it is unlikely you will want to be in business with them for any extended period of time.
Buy/sell option agreements
To avoid this, where you have multiple business partners, you need to consider a buy/sell option agreement. These agreements essentially sell the interest of a business owner for an agreed price when they die or become incapacitated.
The money is usually funded through an insurance policy that helps all parties to understand what is happening. These agreements give comfort to business partners and families to know that there is certainty if something happens to you.
The right legal documentation
For your business succession, you need to consider what documentation needs to be put in place. Legal agreements such as buy/sell option agreements, wills and powers of attorney are all documentation that can all be put in place to help with your succession planning.
You also need to obtain the advice of your lawyer, accountant, financial planner and other consultants. This is an area that you don’t want to take well-meaning, barbecue advice from friends and family.
Every person’s situation is different so you need to make sure that you are set up correctly.
