A Guide to Business Succession Planning for Business Owners in North Carolina
The Small Business Administration (SBA) reports that there are nearly 850,000 active small businesses in North Carolina. Approximately 90% of these businesses are family-owned companies. Yet, a recent survey from North Carolina Chamber of Commerce estimated that only one in three family businesses make it to the next generation.
Business owners can improve the long-term outlook for the company by putting a comprehensive business succession plan in place. Also sometimes called “business retirement plan,” a succession will help ensure that the company succeeds to the next generation. Here, our Charlotte estate planning attorneys explain the key things that should be addressed in a business succession plan.The Elements of an Effective Business Succession Plan
Do you know what would happen to your business without you? Would the company still be able to operate successfully on a day-to-day basis if you suddenly passed away, became incapacitated, or were otherwise forced to exit the business? Business succession planning is designed to ensure the next generation of leaders and decision-makers are in position to take over the company when the time comes. Some of the key elements of a business succession plan include:
- Identification of Successors: The identification of future successors is perhaps the single most important aspect of business succession planning. As a business owner, you need to decide who will step up and lead the company tomorrow if you are unable to do so. Successors must be identified and prepared. You do not want to leave a successor—whether a family member, business partner, or long-term employee—trying to steer the company without the proper tools.
- Business Valuation: As part of overall business succession planning, it is always a good idea to ensure that you have a reliable valuation of the company. Without a clear view of the true value of the company, it is difficult to to transition a business from one generation to the next.
- A Plan for the Transfer of Ownership: You may also want to consider setting up buy/sell agreements or buyout agreements to allow ownership to transition smoothly to the other partners if one business owner is suddenly forced to exit the company. Notably, any buyout agreement or cross purchase agreement should be funded. There are several strategies that small business owners can use to ensure that the company has access to the liquid capital it needs to navigate the transition.
- Strategies to Implement the Plan: Implementation of a business succession plan cannot be overlooked. Imagine that a business succession plan names successors who can lead the company in the future. How are they actually going to get in position to take control? Will they buy the shares from the former business owner(s)? Will there be an interim period of new management? Questions like these need to be answered within the plan. A well-crafted business succession plan should lay out a clear roadmap for the company.
- Tax Planning and Financial Planning: Tax planning and financial planning are an important part of overall business succession planning. During transition periods, many companies run into cash flow problems. Strong and sustained positive cash flow is essential to the continued successful operation of a small business in North Carolina. A succession plan should provide guidance and protection on taxes and other financial matters.
- Contingencies to Deal With Problems: Finally, a business succession plan should always include some contingencies to deal with problems. For example, if a conflict arises during the transition, the succession can give some useful guidance for how it will be solved. Every company faces its own set of challenges. It is useful to craft a plan that anticipates and addresses some of the most notable risks.
Ultimately, every successful succession plan is narrowly tailored to suit the unique needs of the company or organization. While all great business succession plans share some common core elements, it is crucial that your company has a customized plan that effectively addresses its specific circumstances. An experienced North Carolina business succession planning lawyer can help you and your partners get started on business retirement planning.Contact Our North Carolina Business Succession Planning Lawyers for Help
At Arnold & Smith, PLLC, our Charlotte estate planning lawyers have experience representing business owners and entrepreneurs. If you have questions or concerns about business succession planning, we are available to help. Contact us now for a strictly confidential initial consultation. We provide estate planning services throughout North Carolina, including in Charlotte, Gastonia, Concord, Monroe, Kannapolis, Rockwell, Hickory, Morganton, and Statesville.