Estate planning seeks to ensure that your decisions are carried out after you are gone. When we think about estate planning however, it’s most common to focus on the individual. While this may be for good reason because we first want to take care of ourselves and our families, it is important not to overlook the planning that is necessary to smooth the transition of the small businesses interests you may own.
Business succession planning is the term given to estate planning for companies. To put a plan into place for your business you will need to draft a buy-sell agreement between the partners. Often, the company or its partners will purchase life insurance in conjunction with such an agreement to help cover the costs associated with a buyout. While it can take on various forms and will include specific provisions for your unique business and familial situation, there are two common techniques that are used to help both the business and the leaving partner’s family make the transition when an owner leaves the business.
When a partner is departing the business due to death, disability, or retirement, one option is to allow the other business owners to buy out the exiting shareholder’s interest. A second option is to allow the organization itself to buy back the interest of the shareholder who is leaving. Both options keep the ownership and control of the business concentrated in the existing partners. They also help the individual exiting the business, or the family who may have suffered a loss, get a fair price for their business interest in a short amount of time.
If you own a business and have not thought about potential exit strategies, you should talk to your business or estate planning professional about options for making any transition with your business a smooth one. A little planning can save enormous amounts of time, money, and aggravation when the time comes to move on.
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