Business Succession Planning

Each business is unique, and the most effective succession planning strategy depends entirely on your specific circumstances. Succession planning is just one element of a holistic estate plan. Your estate plan as a whole should focus on asset protection, life insurance policies, tax planning, implications of passing down wealth (like the estate tax), plans for future business ownership, and smooth transition of your business management. These plans will all be different for each situation.

That being said, here are a few possible components of succession planning strategies for St. Louis entrepreneurs:

Selling the business is a straightforward option that can provide you with financial security before retirement. Business attorneys and real estate lawyers can help you figure out how to proceed with this option. However, it may cause your family to lose control of the business forever. Carefully consider tax implications when selling the business – particularly those related to capital gains. 

A buy-sell agreement lets you set the terms of a business sale ahead of time. It’s basically a plan between the business and the business owners for what will happen in certain situations. This predetermined transaction moves forward after a specific event – usually your death or retirement. 

Another option may be to establish a limited partnership for the benefit of your family. Over time, you’ll transfer business interests into the partnership in the form of gifts. While this strategy offers various advantages, its complexity may not be suitable for smaller businesses. Speak with the Law Office of David S. Schleiffarth, LLC to determine whether a limited partnership is right for you. 

Many business succession strategies revolve around irrevocable trusts. One example is a grantor annuity trust (GRAT), while another popular option is a grantor retained unitrust (GRUT). Both strategies provide you with reliable income in the form of annuities while simultaneously transferring ownership of your business. 

Private annuities also transfer ownership of your business, but these agreements are less formal. While GRATs and GRUTs are “secured,” private annuities offer fewer guarantees of payment. However, they may be more suitable for transactions between family members. 

Also known as a “SCIN,” a self-canceling installment note uses a promissory note to immediately transfer ownership of your business to another entity. In exchange, the buyer pays you a series of payments over the course of their lifetime. 

You may need to take different steps depending on which succession strategy you choose. That being said, most succession plans have the same general trajectory:

This step is especially important for small, family-run businesses. Select the right successor, and your company will continue to thrive after your passing. Many founders choose trusted employees if no family members seem suitable for this important role. 

A successor should have the necessary experience, qualifications, and drive to lead your company to greater heights. However, you can help a successor develop many of these traits over time with effective training plans. 

Your succession plan should follow a timeline. When do you want to retire? When should you successor take control of the business? Clear timelines create transparency, offering your employees a sense of confidence about the future. 

How much money do you need to retire? When do you want to stop working? Consider these retirement questions as you plan out business succession. 

Succession planning for small businesses ensures the long-term survival of smaller operations. These plans often revolve around highly personal issues within families. While a larger corporation may select a new leader based on qualifications or experience, a small business may prioritize family ties. 

Poor succession planning is a risk, but effective succession planning is not. In fact, a solid succession plan can help you alleviate risk. 

You should use a business succession plan if you want your operation to survive past your death or retirement. A succession plan can also provide your beneficiaries with reliable financial support into the foreseeable future. 

Succession plans fall into two main categories: Emergency plans and proactive plans. An emergency plan deals with basic needs such as leadership, liquidation, and the transfer of ownership. In contrast to these “last-minute” emergency plans, proactive plans begin years in advance. Long-term plans also deal with more complex issues – like gap analysis and talent development. 

Business succession planning ensures that your business falls into the right hands. Succession planning also sends a positive message to your employees – reassuring them of their future careers at the business. Planning ahead is important because it gives you time to train new leadership. 

Business succession planning ensures seamless transitions upon your retirement or death. It also helps you pass on crucial business lessons. With an effective succession plan, your business will experience minimal disruption and incur low recruitment costs. 

When planning out business succession, you should involve new leadership candidates, family members, beneficiaries, accountants, and a qualified business succession planning attorney. 

A poor succession plan may fail to take various tax implications into account. You might also begin this process too late – with insufficient time to train new leadership. Some business owners encounter serious issues after attempting to handle succession planning without help from legal professionals. 

Hiring a business succession planning attorney is a positive choice. These legal professionals can help you avoid common mistakes – and they may suggest effective strategies based on your unique business needs.