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    Succession planning for your business

    Succession planning for your business

    Business Solutions

    It may be hard to imagine right now, but odds are the business you’ve worked so hard to create will be owned by someone else in the future. Eventually, you will either give up the helm voluntarily when you retire, or involuntarily as the result of an unexpected event. 

    Charting a path for your small business

    Succession planning helps you specify, in writing, what will happen to the business when you retire, become disabled, die prematurely, or otherwise step down. It is not a one-time event, but instead a continuous process that starts with your goals, and builds and improves over time. Your succession plan is also a roadmap for you, your family and your employees to help ensure that, in the event you are no longer able to run the company, any ill-advised decisions are kept to a minimum. By creating a succession plan today, you can make the decisions now about what will happen to your company in the future.

    What goes into a succession plan?

    Like any strategy your business may already have in place, a succession plan follows the same principles. It should address the who, what, when, where, why and how you would like to transition your business. Your professional tax advisors will be able to provide you with detailed guidance on setting up a succession plan customized for you and your company. Generally speaking, your succession plan should address the following:

    • Your goals – what do you want from the business when you exit?
    • Your successor(s) – who will take over and are they prepared?
    • Ownership – what will future owner roles be, and what will the ownership percentages look like?
    • Management – how will you keep key employees on board through the transition and beyond?
    • Transfer plans – what are the steps involved in the transfer, and what is the timeline?
    • Triggering events – what events (death, disability, retirement, divorce, bankruptcy) will start the transfer process?
    • Purchase price/financing – Where will the funds come from for a buy-out and what are the tax implications?

    Other considerations

    Your succession plan will also have an impact on both your retirement plan and estate plan. Some additional considerations you will need to keep in mind:

    • Value of the business: You need to know the true know the value of the company so you are confident the succession plan is accurate. Keep tabs on company value regularly (every three years) and update your succession plan to account for any changes
    • Estate Equalization: If a family member who works in the business is the chosen successor, you should indicate how you plan for equitable distribution of the remainder of your estate for other family members, such as other children, who have no knowledge of the business.
    • Sale Proceeds: You’ll also want to include instructions relating to taxes from the proceeds of the sale of your business, and detail what should occur regarding your personal estate plan.

    Timing matters

    Regardless of what form your succession plan takes, its ultimate success often hinges on timing. The sooner you start planning for the eventual transition, the more flexibility you’ll have in making future adjustments because — let’s face it — the only thing that’s guaranteed is change.

     

    The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.

     

     

    CRN202105-230367


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