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Succession Planning Addresses Company Operations and Estate Planning

Succession Planning Addresses Company Operations and Estate Planning
There are two sides to a succession plan. One is for the operation of the company, and the other is for the ownership of the deceased owner's share.

Business owners typically have a high percentage of their net worth tied up in the business and sometimes the real estate where it operates. What’s surprising is how little attention is often given to the succession plan, says an article from Accounting Today, “The two sides to succession plans for private businesses.” Starting with the operational side, who will take over the business owner’s work when they die, become incapacitated, or retire? If a business founder is in the weeds of the business, this is a big issue. The owner must have extensive conversations with key employees to discuss the details. While Beck, Lenox and Stolzer Estate Planning and Elder Law, LLC, isn’t heavily involved with business planning, we do offer suggestions for our clients who have businesses, especially if they have not done any succession planning. We let them know that succession planning addresses company operations and estate planning.

Multigenerational family ownership isn’t always the cure for a succession plan. Second- or third-generational roles must be planned, so capable people fill them. Bloodline succession doesn’t always work for running a business.

These conversations regarding roles, compensation and equity incentives must be very detailed. Not all employee leaders are willing to pour their lives into a privately owned business for the benefit of heirs without an incentive plan.

On the financial side of succession, who will become the owners of the deceased’s shares, and what financial arrangements will be made for that transfer? Businesses with the least amount of animosity and grief are those who have done the hard work: they have the business evaluated by an outside professional and having clear plans for how the successor owners will own and operate the business.

How will the transfer of the business take place in the future? An estate planning attorney should work with the business’ accountants, financial advisors, insurance brokers and other professionals to develop a clear plan for the business and the family.

If the owner is contemplating retirement, will they count on the income from the business operations to fund their retirement, or will they sell their shares to family members or outsiders? Who will oversee this transfer if the business owner becomes incapacitated?

Succession planning for a privately held business is a lengthy process requiring input from skilled professionals, and ideally, it should begin the moment the business is well-established. There’s always time to tweak an existing plan, but never time to plan in an emergency. Beck, Lenox and Stolzer wants business owners to know that succession planning addresses company operations and estate planning, both which are vital when family members plan to stay in the business. If you need help with business planning and succession planning, contact us for a referral to an attorney that specializes in that practice area.

Reference: Accounting Today (Feb. 13, 2024) “The two sides to succession plans for private businesses”

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