Cementing Your Legacy: Consider These Succession Planning ItemsCementing Your Legacy: Consider These Succession Planning Items
Succession planning guarantees that a company operates smoothly after its most important employees are no longer responsible for running the company.
Roofing and construction can be dangerous jobs.
You are often dealing with heavy equipment and using ladders as a common way to get from the ground to the roof.
It only takes one thing to go wrong to could change not only your life but also the life of your business and your family landscape.
Take a second to consider, would your loved ones or your business be taken care of should something unfortunate happen to you?
To put their minds at ease, small business owners should consider a strong business succession plan.
Succession planning is a tactic for transferring the leadership roles, and often the ownership of, a company to an employee or group of employees.
Succession planning guarantees that a company operates smoothly after a company's most important employees are no longer responsible for running the company.
There are many other benefits to a strong succession plan for your business.
Employees know that with a business succession plan, there is an opportunity for advancement, and possibly ownership, which can lead to productivity and happiness amongst personnel.
By instituting a proper succession plan, leaders and business owners are able to openly share company values and visions for the future.
A succession plan also allows leadership to pay closer attention to and better track the value of employees so that vacancies can be filled with internal candidates instead of hiring from the outside.
At the very least, the business succession plan needs to address two important questions.
First, how does the small business owner and/or their family get paid in the event of a transition of ownership?
Second, how does the business pay for the payment made to the selling shareholder or his surviving family?
Let’s take on the first question. Usually, the family is included in the terms of a buy/sell agreement or other similar shareholder agreement.
A buy/sell agreement is another very useful tool for small businesses that governs the methods in which shares are transferred between shareholders that intend to remain with the company and selling shareholders.
Additionally, these documents often require that any spouses also consent to the method of transfer.
If a buy/sell agreement is not in place, then the company will either need to purchase the shares using a stock purchase agreement, or preferably, a stock redemption agreement.
By virtue of the stock redemption agreement, the selling shareholder’s interest in the company is absorbed back into the company, providing the remaining shareholders with a larger interest in the company.
Businesses have a multitude of options available to make these payments to a selling shareholder. While using cash on hand is a possibility, most companies will opt to pay out a selling shareholder on a note over a term of years.
It is important to consider a few items on the note, such as other income that the selling shareholder may receive, the amount of income they need to live comfortably, etc.
For disaster situations, it is highly recommended to consider “key person” insurance on any critical owners.
In this type of life insurance, the business is the beneficiary and takes out a life insurance policy on critical company leaders.
If the key person dies, the business receives the policy and can use the proceeds to pay out the shares of the surviving spouse or heir of the key person.
Death is an unfortunate reality that everyone must deal with.
With a strong estate plan that includes a will, healthcare power of attorney, property power of attorney, trusts, and a business succession plan, individuals and their heirs can have peace of mind in knowing that their estate and business will be taken care of long after their death.
The professionals at The Center for Financial, Legal, and Tax Planning are more than knowledgeable with regards to the best succession planning topics to fit your needs.
If you have any further questions or would like our assistance in selecting the best methods for you, please contact the tax planning professionals at The Center for Financial, Legal and Tax Planning online or call (618) 997-3436.