Business succession is vital to those who own their own businesses.
Starting and running a business takes strategic planning, hard work, and resilience.
It is certainly not for the faint of heart.
With the amount of blood, sweat, and tears individuals pour into these enterprises, it would be a shame for it all to disappear due to poor planning suddenly.
While some may have family members willing and able to take over the business, others may find the best option is to sell the business to capitalize on their diligent work, transition to new ownership, or simply retire.
According to a recent Smart Business Dealmakers article titled “Get Your People Ready To Sell,” detailed preparations with a business planning attorney can help you set your company up for a lucrative and smooth transition.
A business succession plan helps preserve the value of your company.
Succession planning applies to all businesses.
It is not limited to family businesses or large corporations.
A strong succession plan ensures your business has capable leadership and stable structures in place to thrive under a different owner.
1. Identify Key Personnel
People are key to whether a business will thrive or struggle.
Buyers will find your business more appealing if your team is experienced and works together well.
You should select an important individual within your organization to be involved in the sale and the transition process.
These staff should be prepared to provide compelling answers about the finances, operations, and growth potential of the business.
Having a strong team with a clear structure makes your company more appealing.
2. Establish Leadership Backup Plans
Investors who buy a business generally are putting their money behind the people running the company.
You will need to make contingency plans should a key leader become incapacitated.
Preparations should include a successor for the leadership role and documented processes to ensure knowledge is available to preserve business continuity.
Business planning attorneys will be able to help you safeguard against disruptions by addressing these concerns in a plan.
Buyers want to know the potential for growth and the specific value of your business.
How does one accomplish this?
1. Highlight Key Business Strengths
No business is an exact carbon copy of another.
Take time to determine the ways your business is distinct from others.
Consider whether your business has a loyal customer base, intellectual property, proprietary technology, a solid industry reputation, or strong financial performance.
2. Create a Data Room
Investors tend to use data to determine whether to purchase a company.
Having documents accessible and organized will help you in the process of selling and transferring the business.
What documents should you have?
Gather audited financial statements, contracts and leases, ownership records, and tax returns.
Updating your data regularly can simplify the sale and promote confidence in the purchase.
Selling a business by nature involves financial and legal matters.
A business success attorney can provide guidance in these areas.
1. Ownership Structure and Agreements
The legal business structure and ownership will impact the sale of the business.
You will need to review and update buy-sell agreements and partnership agreements.
If there are any ambiguities or disputes about ownership, you should resolve them before selling the business.
2. Estate Planning for Business Owners
Is your business a large portion of your net worth?
If yes, your business succession should be included in your estate planning.
An experienced estate planning attorney can help you reduce taxes from selling the business, promote continuity in family-owned businesses, and allocate sale proceeds to heirs or charitable organizations.
Family businesses have unique complexities to consider in estate planning to preserve family relationships and the business.
1. Document Ownership and Roles
Clarity is key.
You should have established and recorded agreements on leadership and ownership.
By formalizing these, you can minimize the likelihood of future disputes around the transition.
2. Transfer Knowledge and Processes
Families often run businesses less formally.
This can mean that only a few individuals have the critical knowledge to run the business.
Business succession planning involves documenting vendor relationships, client information, and processes.
When the family members with this specific knowledge retire or die, the information will not disappear with them.
The growth of a business is key to attracting buyers.
How can you highlight the potential of your company?
Showcasing Scalability.
Identify how new markets could be entered or operations expanded.
Diversifying Revenue Streams.
Businesses tend to have greater security with diverse clients, services, or products.
Strengthening Customer Relationships.
Retaining customers and providing good customer experiences gives your business a credible name and promotes growth.
Business attorneys use their expertise to ensure financial records, ownership agreements, and other legal documents are in order.
They help you navigate the sale to comply with local, state, and federal regulations while minimizing tax liabilities.
Estate planning attorneys can be beneficial to entrepreneurs and family business owners as they transition ownership.
Selling a business is significant to those who have sacrificed and worked to build the company.
Strategic preparations for the transition can help you protect your team and maximize the value of your business.
It is never too early to identify and train individuals for leadership roles or make backup business succession plans.
Your business has a unique story.
By sharing the value of your business and providing the data to underscore its importance, you can make your business more appealing to potential buyers.
You should document all processes so the business can continue running smoothly without you while positioning your company for scalability and security.
A business planning attorney will help you avoid legal and ownership issues while minimizing tax burdens from the sale of your business.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: Smart Business Dealmakers (Oct. 24, 2024) "Get Your People Ready To Sell"
REMEMBER: “The choice of a lawyer is an important decision and should not be based solely upon advertisements.”
This statement is required by rule of the Supreme Court of Missouri.
