Business Succession Planning

Business Succession Planning | How To Transfer Business Ownership 

Crafting Sound Business Succession Planning to Preserve Your Hard Work

Business succession planning is defined as a series of logistical and financial decisions about who will take over your business upon retirement, death or disability. To write a succession plan, the first step is to identify the ideal successor to take over the business, then determine the best selling arrangement.

You have worked hard to establish a business, and as a business owner, you’re always planning your next move.  At some point, you’ll no longer be involved in the business.  Maybe you want to retire and walk away on a particular date.  Perhaps you want to cede day-to-day operational control and sell your ownership interest over time.

Then again, you may prefer to run the business until you can no longer physically able to do so.  Whatever the case, it is critical to have a sound business succession planning in place. Our experienced legal team will work with you to understand the unique dynamics of your business and establish a responsible business succession plan to fit your needs.

No “One Size Fits All” Solution to Business Succession Planning

Business succession planning is a complex process and every business is unique. There is no “one size fits all” solution to winding up or transitioning a business. We understand that, like you, your business is unique.

At Altman & Associates, we believe that the four most important goals of business succession are establishing:

(1) a new management structure

(2) an ownership transition plan

(3) a strategy for dealing with the taxation ramifications of transitioning a business

(4) and financial security

This last part is particularly important, as you do not want to transition into an unstable financial situation.  Our founding attorney, Gary Altman, Esq., is also a Certified Financial Planner™.  Gary and his team help you understand potential legal and financial ramifications of business succession for you, your family, and your business.

In order to understand how to formulate a plan for business succession, you should start considering the answers to a number of important questions, including:

  • Do you know how you are going to achieve your retirement goals? We help you identify a cash value for your retirement portfolio which represents a comfortable lifestyle.
  • What is your business worth today? You must understand the cash value of your business in the market, not what it means to you personally. Getting the actual valuation is the only way to understand the tax ramifications involved.
  • What does your income stream from your ownership interest look like? Your value in your business is your ownership interest. You should determine how to receive the most monetary value in exchange for that interest, along with whether you need the money now or over time.
  • Do you know how to sell your business and receive optimal tax treatment? You need to decide whether you want to sell to family, other owners, or a third party. When you make a decision, you must then structure the transaction to minimize your tax liability.
  • Do you have a plan to provide for your family if something happens to you? You may choose from a variety of ways to sell your business or transition to your retirement, however, is your business succession plan a part of your estate plan? You must ensure that your family is taken care of and supported through your business succession plan – regardless of what happens to you.

5 most common ways to transfer ownership of your business:

1. Co-owner

Selling your shares or ownership interests to a co-owner(s)

2. Heir

Passing ownership interests to a family member.

3. Key Employee

Selling your business to a key employee.

4. Outside Party

Selling your business to an entrepreneur outside your organization.

5. Company

For a business with multiple owners, you can sell your ownership interests back to the company, then distribute to the remaining owners.

For a business that is owned by a several individuals, such as members of a family, business succession involves planning proactively for the transition to new management and to new controlling ownership after the senior or majority owners and managers die, retire, or become disabled.

Some additional business succession planning considerations include:

  • How to value, and how often to re-value, the entire business or ownership interests
  • How to identify the skills, experience, and character traits that future owners or managers of the business should possess
  • How to give key employees rewards or incentives to keep working loyally for the business
  • How to fairly treat family members who do not participate in managing the business
  • What restrictions should be placed on existing owners’ sales or gifts of their interests in the business
  • What events (death, disability, divorce, bankruptcy, retirement, being fired for cause, etc.) should trigger a buy-out of an owner’s interest in the business, and at what price
  • How to identify the terms on which the business or the remaining owners should pay for the ownership interest of an owner who has died, quit, retired, become disabled, filed for bankruptcy, etc.

We use legal tools or methods such as life insurance arrangements, recapitalizations, buy-sell agreements, non-competition covenants, stock options and restricted stock awards to key employees, and deferred compensation arrangements to advise and assist our business succession planning clients.

Business succession planning is not an all-or-nothing proposition and can be done in incremental steps over a period of months or years.

Planning to Protect Your Life’s Work

At Altman & Associates, our attorneys provide the trustworthy guidance you need to determine next steps for your business and your future. We’ll help you answer the questions above and come up with innovative, personalized solutions to protect your life’s work. Contact us by phone at (301) 468-3220 or online to schedule a meeting at one of our convenient office locations in Maryland, D.C. or Virginia.

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