When you build up a business, it is more than just a job. When you build up a business, you’re planting a seed, but also nurturing it to grow and creating something special. But not everyone who builds a business is looking to die in their office, and that is why, as a business owner, you need to be thinking about exit strategies. Sometimes, that means selling to a competitor or bringing in an outside buyer. Other times, it means succession planning, choosing who will take over for you, training them, and leaving them with your support.
How fast can I decide to retire?
It is important to recognize that succession planning is more than just making a quick decision to get out of the business. You need to make sure that you have a strong team of advisers helping you – handling any tax, legal, or investment questions and ensuring that you are making decisions with as much information as possible.
What should I think about before creating my succession plan?
One of the most common succession plans is to leave the business to your children. You bring them into the business and help them learn it, teaching them how you operate it, and when you are ready to start stepping away, they are prepared to fill your shoes. While this has some advantages, it also has some disadvantages as well. It is important that the children have the ability to run it, but also the desire to run it, as they will need to command the respect of the employees.
Another option is to take on a partner, either from inside or outside the company, and then sell to them. They will be familiar with the company and the transition may be easier. However, it can result in you having to walk away completely, and while some people want that, others want to maintain a connection to what was built.
No matter which way you choose, it is important to determine how you will transfer the business. If you plan to sell it, you need to consider:
- Do I want a lump sum payment or installment payments over time?
- Can my buyer afford a lump sum payment?
- Is the only way for my partner or children to buy me out, to make installment payments?
When an installment payment plan is required, we will frequently structure these payments based upon income from the business.
How can an attorney help me?
In order to best structure this sort of transaction, we first sit down with our client to determine:
- What is the value of the business? or What is it worth on the open market?
- How much money do I want to get out of it (and over what time frame)?
- How much involvement do I want to have in the business going forward?
We work with our clients to structure a deal that allows you to say goodbye, in your way.
Planning for the “what-if?”
We help our clients plan for the what-if in succession planning. What if something happens to you before you are ready? It can be difficult for the business to continue operating when something unexpected happens to the owner.
It is important that there be a succession plan so that someone can:
- Make the day-to-day decisions;
- Hire and fire employees and staff;
- Place orders and sign contracts; and
- Make those high-level decisions.
Some of this is simple to ensure – making sure that someone has a Power of Attorney and can vote your shares or membership interest. Some of it is more complicated – it may mean delegating some authority to employees to ensure that the lights stay on.
But that is a good thing. No one person should be so indispensable to a company that without them, the company falls apart. Some of the best-run companies keep lists of possible replacements for their key employees, including the owner and CEO, if necessary. Companies can also ensure that a key person’s loss will not impact the company financially. Many insurance companies offer “key-person” policies, which can offer financial help to a company when an important employee or manager dies or can no longer work. Key-person insurance is one of the most important steps to take in succession planning for emergency situations.
I will retire one day!
It is not enough to say, “I plan to retire one day.” Succession planning is a multi-year process and when you are ready to put that plan into place, there are many legal aspects to it. Having a good team around you to assist you is important and the advice they give you is essential to the process. In the end, you will have passed your business on to new blood. The hope is that they will be able to help it grow and become something even greater than what you had created.
About Rosenthal Meyer, PLLC
Rosenthal Meyer, PLLC was founded by attorneys Matthew Rosenthal and Justin Meyer, who share the same commitment to providing client-centric legal services, with a concentration in business law, wills & trusts, probate, and real estate. The multi-state community law firm prides itself on its experience, approachability, caring about the outcome of the situation, and providing legal solutions that work. Their focus is on legally protecting clients through the evolution of their business, and through all stages of life. They take pride in getting involved with the communities they serve and building long-term relationships. For more information, visit https://rosenthalmeyer.com.