Bernstein & Feldman, P.A.

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Small business succession planning 101

You have put so much into your business to get it to this point, and now that you have found success, you worry about the future. Who will run things when you retire? Succession planning is often difficult to think about, as the implications can be scary, but it is one of the most important decisions to make for any business owner. Before you write it off as another perpetual "to do" item, consider some of the reasons it's so important to plan ahead.

Why succession planning matters

It is important to understand that succession often comes unexpectedly. When age, illness or other factors make it difficult for you to operate your business, someone else has to fill your shoes, and while some business owners get to transition smoothly to retirement, that isn't always the case. Since you don't know what the future will hold, a solid plan is necessary.

Circumstances could change suddenly for myriad reasons; you can't necessarily count on finding a buyer or even a successor at the critical hour. In addition, your business may not function in the same capacity or at the same value at the time of succession as it does now. With proper planning, you can lock in certain valuations and commitments that can protect you from economic downturn and other risks. Most importantly, you need to remember that relinquishing ownership does not mandate that you have to abandon all control or income. You can build a plan that protects your rights while you transition to a new owner or partnership.

Solid planning to prevent disputes

Ultimately, you want to make sure your succession plan is airtight and manageable. A firm experienced in business matters can help you ensure your plan protections your interests, family and your businesses future. These are a few general tips to help you get a grasp on the basics and get pointed in the right direction as you begin to think about creating your succession plan.

1. Get Appraised. An appraisal should be considered a mandatory first step. You need a concrete figure for the value of the business in order to determine the factors of succession, as it often includes a form of buyout.

2. Identify Successors. If you don't already have a clear person or persons in mind, it's time to start thinking. You can't form a detailed plan until you know how many people will inherit your business. You also need to decide if you need to plan for family succession or your own exit strategy.

3. Decide the Process. This will depend heavily on who you choose to succeed you. There are three basic ways to go about succession: You can gift the business (like an inheritance), your successor can buy your share or you can arrange a gradual transition of power and ownership. The details can vary, but you need to know which general course you want to pursue in creating your plan.

4. Put It in Writing. When the basics are decided, work with an attorney knowledgeable in business succession planning to draft a contract. Make sure it includes dollar values for the transition (which do not have to be static), a timeline and protocol for dispute.

Planning for your businesses future can seem far off right now, but succession planning is not something that should wait. Having a well thought out, detailed and through plan can help ensure your family and your business interests are protected no matter what the future may bring.

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