Oklahoma Lawyers Handling Succession Planning

Estate Planning for Business Succession | The Business End of a Business

People tend to avoid planning for their own deaths and incapacities.  Although you'd think business owners would approach this in a more business-like way - they don't. Studies have shown that up to 77% of business owners have a Will, but only 33% have business succession plans. That means: if business owners die, become disabled, or decide to retire, the majority of their businesses will face grave transition problems. Some studies report that of 24 million+ family businesses in the USA, only 3% survive to the third generation almost entirely due to failure to plan to transition the business from the founder to successors. Experience proves that failing to plan for succession is the fastest way to ruin your business, and as a result, your family.

So what is a Business Succession Plan?

A Business Succession Plan is an organized process that goes into effect immediately when a business owner becomes permanently incapacitated, dies unexpectedly, or retires. It sets out steps, authorities, and financial arrangements for a business to continue operations without its founder or present leadership. With a plan there is order. Business decisions are not made in the emotion of the moment. The players know what to do and who has the authority to do it. Without a plan, chaos often occurs in the business. It is common for portions of the plan to be incorporated in the business owner's estate planning instruments as well.

What should a Business Succession Plan address?

1. Think about what you want to happen to your business should something happen to you. How will you communicate your choices to your intended heirs? Will you?

2. Who do you want to take over for you - a spouse, child, or someone outside of the family? If the person you expect to take over your business is not a family member, will family members also inherit? Do you have partners in or outside of your family, or a combination of both? Is there a "buy out" process addressing partners or family members? Will the person who inherits your business also run it? If your business heir is not a family member, will family members remain involved? Who will have decision-making authority over what business aspects? Do you know whether your intended successors accept the roles you have planned for them?

3. Under what circumstances will the Business Succession Plan be carried out? When will the Business Succession Plan be implemented? Does the business have adequate liquid assets? Do you need insurance to assure liquidity so your business can survive the transition? Should you set up the Business Succession Plan before you buy insurance? How will you train and prepare your successors? Is the training different for family members and non-family members? How will you make sure that issues don't result in expensive Court procedures or suspend your business operations?

Can I make a Business Succession Plan by myself?

The best Business Succession Plans are written in consultation with an experienced estate planning attorney. Depending on the size and complexity of the transition process, other professional expertise can be valuable. Accountants, financial advisors, even psychologists may be brought in for complex Business Succession Plans. The issues can be legally and financially intricate, especially with regard to taxes. Many issues are sensitive. It's difficult to keep perspective when comparing what is best for your business with what is best for the people you love. The kind of plan you create depends on many factors including the type of legal entity. The survival of the business you wish to implement, plus the usual questions of ownership and management should be considered. For a partnership, it might be a Buy/Sell Agreement that sets the value of the business so that a partner can buy out its interests. For a corporation, it might be a Shareholders' Agreement. Your plan could be part of a Trust or other document that gives instructions. You must first develop a Business Succession Plan and then draft the legal documents that will make it work.

What will a Business Succession Plan cost?

The cost depends on the type of plan you establish, whether you use a financial planner or attorney. Our attorneys are experienced in both areas. The costs are reasonable and have a great Return on Investment (ROI). The dollar amount provides many times more than its value. Consider the expense of what will happen if you don't make a Business Succession Plan and keep it up-to-date.

When should a Succession Plan be made?

Now. Even a single owner start-up business should have a Succession Plan if the investment is significant. All co-owned businesses need a coherent way to deal with succession under all circumstances. If not, a business owner may suddenly find himself or herself with new partners such as someone's ex-spouse! The sooner you address these matters the less expensive it is to accomplish. Regardless, as soon as a business builds value, all business owners should make the time to develop a plan for the unexpected. Many people think having a Will is enough. Although it may leave the business to an heir, a Will in no way prepares anyone for the process of transitioning the operations to the heir. It also guarantees the company will be tied up in probate court.

Business Succession Plans typically should be updated as often as you maintain your house. It should be updated every 2-3 years. Updates are needed for major changes in the business, the economy, or the owner's personal life. Marriage, divorce, children, illness, disability, death, special needs, even birthdays affect a business's progress. You should plan now for the unexpected. However in 3 years, you might need to consider retirement. What if there are changes in tax laws or you learn your intended heir simply isn't interested in inheriting your business? Your Business Succession Plan is similar to making a Will when your first child is born, and updating it to include additional children.

To discuss making or updating your Business Succession Plan, call The Allison Firm, PLLC, at 918-492-4500 or contact us by email.

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