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Business Succession Planning

When you started your business, most of your time was spent ensuring that you had sufficient operating capital, developing a sound business plan and generating revenues. You probably didn't give a moment's thought about what would happen to your business upon your retirement or in the event of your death of the death of one of your partners.

The fact is that if one of your business partners dies without a business succession plan in place, their interest in your business passes to their heirs. And when this happens you may suddenly find yourself in business with your partner’s wife, children or the second husband of your partner's wife. Business succession planning is a critical strategy to help ensure that your business continues on after the death of one of the partners in the business.

A well-thought-out business succession plan has a number of key advantages:
  • It will place a value on the business or a method to determine the value of the business at time of death. This lets all the partners agree in advance as to how the business will be valued so the remaining business partners can buy out the remaining share at a price that is fair to everyone.

  • By purchasing life insurance on the lives of the business partners for the value of their share, the heirs of the deceased owner can be assured of timely payment for their share of the business.

  • Life insurance gives you the peace of mind to know that buying out the other share of the business won’t put a strain on your business’ cash flow or force you to sell off assets to pay the bill.

  • The beneficiaries of the deceased owner receive a fair price for the share of the business because the price is decided on in advance, and they know the deceased business partner had the opportunity to agree to the value of the business while he or she was alive.

  • You won’t find yourself in a sudden financial bind, so you’re protected from an outside take over.

  • Creates an instant market for a business interest.

  • It facilitates the settling of the deceased owner’s estate since the value of the business is known. Without it, many estates can be held up for months or years while the value of the business is determined.

How do you transfer a family-owned or closely-held business to the next generation? Are buy-sell agreements or other plans up-to-date and still effective for the current situation? Do you want to be in business with your partner’s widow’s second husband’s attorney?

If you don't have clear answers to these questions, as well as to those which follow, Benefit Magic can help.

  • What are your plans for “gracefully” leaving your business either during your lifetime or when you die?

  • What plans have you made regarding your retirement?

  • What plans have been put in writing regarding the transfer of ownership, control and management of your business in the future?
  • Who will run your business when you are no longer involved? (Who runs it now when you are on vacation or away from the business?)

  • If you had died last week, who would be running your business right now?
  • What plans have been made to ensure that your spouse has an adequate income in the event of your death?

  • To what extent will your children be involved in your business?

  • What steps have you taken to make sure that all of your children are treated fairly in terms of dividing your estate?

  • Have you made sure that business loans can be repaid, while leaving sufficient working capital in the business?

  • Will estate taxes force the sale of valuable growth assets or income-producing assets?

    • What do you think the business is worth? Would your absence (death, disability, or retirement) affect this value?





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