Next, determine which members to consider for the leadership positions. It is best to identify this group with an objective system instead of just selecting “favorites.” One option is for members to self-select into the process. This way, those who are already interested in the leadership roles will volunteer. They may be the most likely to take it seriously. Identify several “hopefuls” for each position to be filled.
Identifying them will allow the potential leaders to be “groomed,” trained, and mentored for the possibility of filling the leadership positions. When the time comes for the position to be filled, there will be several people from which to choose, all of whom have had the time to develop for the new role. At least one of them may be ready to meet the requirements.
No matter how you look at it, choosing a successor is of primary importance. You might simply appoint a family member or a business associate. However, there might be several associates or family members involved and each with different strengths and weaknesses.
Making a choice among them may cause long-term family strife, no matter who you chose. Then there might be partners who do not need or want a successor, and they may simply sell their share of the business to other partners in a buy-sell agreement.
Deciding to Sell The Business
If you decide to cash out, you need to know the value of your company. The best way to determine the value is to consult with your certified public accountant (CPA) or to come up with an arbitrary agreement with all the business partners.
Using Life Insurance As A Transfer Vehicle
After you determine the value of the company, life insurance should be purchased on all partners in the business. By having purchased life insurance prior to the event of a partner passing away before ending his or her relationship with the organization will be beneficial. The death benefit proceeds will be used to buy out the deceased partner’s portion of the business, and the distribution will be divided equally between the remaining partners.
There are two basic ways to set up this arraignment. They are the “cross-purchase agreements” and “entity-purchase agreements”. While both ultimately serve the same purpose, they are used in different types of circumstances.
Let the experienced Advisors at Maverick Wealth Management guide you on which would be best for your company.
3 Reasons to Have a Business Succession Plan
Creating and implementing a sound succession plan seeks to provide several benefits to owners and partners:
- Agreeing upon the value of the business and each partner’s shares ahead of time. The agreed upon value will remove the need to come up with one upon the death of the owner or partner and eliminate the family and relational tensions.
- The proceeds of the life insurance policy are available immediately and will be paid to the proper partners with no need to liquidate assets to complete the succession. The quick distribution of funds will potentially eliminate the risk of an external takeover due to a lack of funds or the need to sell the business to cover the partners share.
- A succession plan can greatly aid in allowing for the timely settlement of the deceased’s estate.
Don’t Wait Any Longer
Proper business succession planning requires sound preparation. You, as a business owner should seek a smooth and equitable transition of your interests and should contact the experienced advisors at Maverick Wealth Management to assist them in this matter.