Do you have a small business with a partner or a family owned business and it’s a business that will continue after you have decided to exit or retire?
Do you have a succession plan in your business?
Somewhere around 70% of small businesses do not have simple agreements in place. Far too often you may have gone into business with a friend, and you have a verbal agreement, or in the case of family business you believe that your son or daughter will take over.
Ask this to yourself, if you partner died would you want their spouse as your new partner?
Does your son or daughter really want to take over the business and are they capable?
A good succession plan will take into account the goals of the business, time frames, a valuation of the business, and contingency plans which will cover death or accident. The plan will also contain insurance and ownership of this cover, a very important part of the process. If the ownership is not done correctly, the proceeds of the life insurance can attract Capital Gains Tax, which will greatly reduce the amount that the surviving spouse will receive. It also wise to incorporate how you will fund a retiring partner.
So where do you start?
Get a business plan done, get your adviser to then do a detailed questionnaire and outline what you and your partner want. Once you agree on the terms your adviser will seek the services of a lawyer to draft the document which will incorporate a buy/sell agreement. Your adviser can also get the insurance cover in place and structure it correctly.
You should then review the agreement every few years to ensure that the valuation of the business is in line with any growth and the life policies still have the right amount of cover.
The cost of succession planning tends to stop people from getting this work done. However the cost of not doing is far greater, the only ones who win are the lawyers.