An estate plan addressing business succession may prevent an unexpected disruption to your operations. If you know a motivated individual who could take over your business, you may begin preparing your successor to lead the team.
As noted by The CPA Journal, training your successor builds confidence regarding who could run your business if you become ill. Your estate plan may include documentation covering how to manage your enterprise if you no longer have the ability to do so.
An estate plan that includes succession helps protect your business
Some family-owned businesses transfer to a surviving spouse or heirs when an owner dies. Without documentation specifying a qualified successor taking ownership, your business may not survive. Your heirs may not know how to run your operation.
According to the National Bureau of Economic Research, only 15% of family-owned companies have plans for a successor. Estate planning, however, allows you to name who should take over. Your instructions provide details regarding who controls your business after your death.
A business valuation offers options for ownership transfer
A 2016 survey conducted by the Business Enterprise Institution found that 68% of business owners considered an exit strategy a low priority. When you plan your retirement exit, however, you may transfer your business and receive its maximum value. You could also experience minimal disruption.
After finding a successor, you may obtain your business’s fair market value and consider options for establishing its new ownership. If you have an heir who could manage your operations, you may gift or recapitalize your stock. With an employee as your successor, you may sell your ownership stake or offer to finance the sale.
Lining up a successor gives you an opportunity to train an individual to manage your organization. When you find a suitable match, your estate plan may include instructions on transferring ownership.