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How To Create A Business Succession Plan

By Mark P. Cussen, CFP®, CMFC, AFC

Author: CloverLeaf/Thursday, October 2, 2014/Categories: Articles

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Are you planning to start your own business? Do you have a business succession plan? VenturPlus Capital Group shares why having a business succession plan is absolutely necessary.

Steps you'll need to take to create a successful succession:

Pick a Successor

Choosing a successor can be as easy as appointing a family member or assistant to take the owner's place. However, there may be several partners or family members from which the owner will have to choose, each with various strengths and weaknesses to be weighed and evaluated.

Determine Value

When business owners decide to cash out (or death makes the decision for them), the first task is establishing a set dollar value for the business, or their share of it. This can be done via appraisal by a certified public accountant (CPA) or by an arbitrary agreement between all partners involved.

Buy Life Insurance: The Standard Transfer Vehicle

Once a set dollar value has been determined, life insurance is purchased on all partners in the business. Then, in the event that a partner passes on before ending his relationship with his partners, the death benefit proceeds will be used to buy out the deceased partner's share of the business and distribute it equally among the remaining partners.

There are two basic arrangements used for this. They are known as "cross-purchase agreements" and "entity-purchase agreements". While both ultimately serve the same purpose, they are used in different situations.

3 Reasons to Have a Business Succession Plan

Creating and implementing a sound succession plan will provide several benefits to owners and partners:

   1. It ensures an agreeable price for a partner's share of the business and eliminates the need for valuation upon death because the insured agreed to the price beforehand.
   2. The policy benefits will be immediately available to pay for the deceased's share of the business, with no liquidity or time constraints. This effectively prevents the possibility of an external takeover due to cash flow problems or the need to sell business or other assets to cover the cost of the deceased's interest.
  3.  A succession plan can greatly aid in allowing for timely settlement of the deceased's estate.

The Bottom Line

Proper business succession planning requires sound preparation. Business owners seeking a smooth and equitable transition of their interests should seek a competent, experienced advisor to assist them in this matter.

To read more visit Investopedia.com

Before starting your own business, you should ask yourself these questions. If you’re in need of funds to start your business or you need guidance on spending money on your business, you can get in touch with VenturePlus Capital Group, a leading corporate finance firm.

For latest updates from the world of Corporate Finance you can visit VenturePlus’ Facebook Page.

Keywords

Venture PLUS, Venture PLUS capital group, Corporate Finance Services, Corporate Finance Firms, Investment solutions, Investors, Recapitalization, Restructuring, Strategic advisory services Investment banking, Investment Protection 

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