Now that we know the importance of setting up the funded succession plan, (Business Succession Planning) I believe that many business owners would very much prefer to have a proper plan drafted so that they are guaranteed of their effort they have put in. Security and stability are two important pillars in a succession plan.
Many years back, while I was attending the LUTC certification, I attempted an assigned action project in the Business Continuity Module. In that project, I had interviewed with a few business owners and informed them the intention of the meeting. Not too bad, I managed to secure a few appointments.
"Dear Business Owners, what do you want to happen to your business due to your retirement or upon your early demise?"
That was what I asked. They were taken aback. They wasn't really aware of it too. They are too busy making money. They are experts in making money. They didn't really think about these issues at all. So I shared with them what I've learned during the course; explaining the possible outcomes which might not be desirable. And I got to explain the 3 common options available:
Keep the business.
One option is to keep the business in the family. Is that a possibility? Would you want to keep the business in the family? Which family members would you like to have own your share of the business? Who would run the business on a day-to-day basis in your place? Have you talked to him or her about it? Is he or she willing? Able to run the business? Are heirs and surviving owners compatible? How much annual profit or loss do you estimate over the next five years? Would you want to guarantee these profits to your family? For how long? Would your death cause other outstanding monetary needs?
Sell the business.
Another option, a popular one, is to sell the business as a going concern. Would you want to sell your share of the business to the other owners, and have them buy out your family members? To whom would you to sell your share? Are they willing to buy? Do they want to buy? What would the price and terms of payment be? How will it be funded? Would the buyout be a legally enforceable agreement?
Liquidate the business.
The third option is to close down the business and sell the assets for cash. How does that sound to you? How much would you sell the business for today? How much would the company lose in a forced liquidation versus what it would have sold for as a going business? Do you have any other business-related debts? Do you want to pass them along to your heir at your death? What arrangements have you made to see that your objectives are carried out?
With these three options, it has helps me to assist business owners to build, to protect and to grow their legacy. In business, just like fighting a war, we need both the shield (the protection arm) and the sword (the investment arm) to protect and grow our fort! So by engaging the "right" financial planner, their immediate role as an adviser to assist business owners to protect and to build their business "empire" could be a wise choice.
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