Why succession planning is so important for business owners
Avoid stress and financial strain by planning ahead
Most business owners don’t have a formal plan for the future of their business and often don’t understand the need for it. Even if they admit retirement may come someday, many owners plan to pass the business on to their children. But that’s not always a reality. When it comes to taking action, only 28% of business owners plan to sell or transfer ownership to family.1
But leaving important decisions until a time of transition may create unnecessary stress and financial strain. Owners may find themselves having to sell at a substantial discount due to the lack of ready purchasers. That’s why it’s important to have a succession plan to help move towards a smooth transition and maintain the value of the business for everyone involved.
1. US Trust Insights on Wealth and Worth survey, May 2018
3 succession plan options
Talking with business owner clients or prospects about creating a sound plan could help the success of the business, and allow the owner to avoid a potentially unfavorable position in the future. Consider these three planning options as you work with your clients or prospects to put a succession plan in place:
- Secure an informal business valuation. Before digging into the details, request the business go through an informal business valuation. This valuation by a team of experts takes into account many factors related to the business and industry to determine how much the business is really worth.
- Consider an employee stock ownership plan (ESOP). An ESOP can provide liquidity for an owner(s) looking to exit the business in a tax-advantaged way. It’s a retirement plan with special features that can offer benefits to succession planning and even business planning in general.
- Establish a buy-sell agreement. This prearranged contractual agreement between a buyer and seller defines triggering events such as voluntary termination, death or total disability. It outlines the sale price and terms.
Remind owners to plan sooner rather than later so the business can move forward after the owner has moved on. Putting a succession plan in place helps the financial wellbeing of the business and the owner with a prepared transition to retirement or the next phase of their life.
Next steps
We're here to help you grow your business by supporting your clients and prospects with succession planning needs.
E-mail our Advisor Support Team or call 800-952-3343, option 2.
E-mail our Advisor Support Team or call 800-952-3343, option 2.