Charting the Course
The first order of business is to decide what you want to happen to the business when you step down. Ask yourself:
- What is my business worth? Have the business independently appraised to establish its value. Clear up any outstanding tax or legal issues that could complicate the transfer or sale of the business.
- How many more years do I intend to manage the business? Use the time to create an orderly transfer of power, but keep in mind that you need a contingency plan in case you become incapacitated or die unexpectedly.
- Do I expect family members to take over? If so, start identifying and grooming those family members now, taking into consideration their abilities and interest levels. Some may want to be employed in the business but not run it, and others may not be interested in the business at all. You may want to consider gradually handing over control to the designated heir or heirs so you can monitor progress. Keep in mind that family and sibling rivalries can complicate business succession; having everyone involved in the decisions may make it easier.
- Are there key employees who may be interested in buying the business? If transferring the business to family members is not an option, consider offering to sell the business to one or two key employees, or to all employees through an employee stock ownership plan (ESOP). If you're selling to business partners, consider a buy/sell agreement.
- What about an outside buyer? If you decide that no family members or employees are capable or interested in taking over the business, consider hiring a broker to sell your company.
- Am I expecting proceeds from the business to finance my retirement? This is an important consideration when deciding whether to transfer ownership to family members, especially if they are not in a financial position to buy you out immediately. If you need the money for retirement, gifting the business gradually – for example, through a family limited partnership – may not provide the income you need. Consider a trust arrangement that pays you income for a specified period.
Full Steam Ahead
A business banker at PeoplesBank can help you evaluate your options and explore the potential benefits of a trust, family limited partnership, ESOP or buy/sell agreement. He or she can also provide referrals to succession and estate- planning professionals to help keep your business afloat after you're gone. Contact us for more information.