The vast majority of businesses in the U.S. are family-owned or -operated. In too many cases, however, even those that are well-managed and profitable do not have arrangements for business succession in place. This means that if the person with ultimate responsibility suddenly becomes incapacitated or dies, the business could be forced to close.
If you are a business owner for whom the last statement resonates, no matter how busy you are with your present responsibilities, you owe it to yourself, your employees, and your heirs to give the matter of business succession your time and attention. If your business is in Louisville, Cincinnati, or the surrounding area, now is the time to contact the business succession planning attorneys at Shaw & Nelson, PLLC.
What Our Skilled Business Succession Planning Attorneys Can Do for You
The risk of leaving your ship without a captain is real. Every day, some business owners have to leave their posts permanently because of an injury, medical event, or incapacitating illness. Every day, circumstances force some business owners into early retirement and some business owners die. This is why every business needs a well-crafted business succession plan, the kind of plan only a knowledgeable, experienced lawyer can supply.
Shaw & Nelson has a well-earned reputation for advising clients on business succession and drafting and executing documents tailored to their needs and desires. We pride ourselves on creating business succession plans that will, depending on your wishes:
- Allow your business to continue to operate without interruption
- Negotiate to sell your business at a good price to your partner or trusted employee
- Facilitate the most profitable sale of your business to a reputable buyer
- Arrange for the efficient closure of your business and the sale of its property, equipment, furnishings, and/or vehicles
Most importantly, we will look out for the best interests of you and your family, and help you preserve the legacy you have worked so hard to build.
By collaborating with a respected network of financial professionals, we will make certain to get fair valuations of your business. As your estate planning attorneys, we will ensure that your business succession plan, like all other parts of your estate plan, meets high legal and logistical standards.
Choosing a Successor
Business succession planning requires several thoughtful decisions. Many factors will impact these decisions, such as the size and type of your business, how much property (e.g. land, furnishings, equipment, inventory, vehicles) your business owns, and the number and makeup of your employees and clientele. The two biggest choices you have to make are  whether you want to keep your business in operation when you are no longer running it and  whom you want to be your successor. The choice of successor must be handled with care because you don’t want to cause bad blood among employees or precipitate a family dispute or rift. Speaking of disputes, it is essential to have a dispute resolution procedure addressed in your business succession plan to prevent your business from being disrupted by future litigation.
Three Possible Approaches to Assessing How Much Your Business Is Worth
There are three basic ways of valuing your business:
- The asset approach is the most basic. Using this method we simply add up your assets on a balance sheet and subtract your liabilities. The asset approach, though simple, does not take into account intangibles like goodwill or market conditions.
- The income approach is more complicated. It combines an analysis of past earnings with projected future earnings. This approach may be considered more accurate or less reliable, depending on your point of view, because it evaluates capitalization and future cash flow, neither of which is guaranteed.
- The market approach analyzes data on the recent sale of other businesses of the same type as yours, according to such factors as company size, assessed market risk, and longevity.
Our business succession planning attorneys have the insight to help you decide which approach is best for you.
The Nitty Gritty of Transferring Your Business
Your business can be transferred in three ways:
- Buy/sell agreement
- Cross-purchase agreement
- Entity purchase agreement
A buy/sell agreement is self-explanatory. A cross-purchase agreement is generally used for a business with few owners, for example, a partnership. In a cross-purchase agreement, each partner buys an insurance policy on the other partner(s). Then, if one of the partners dies, the surviving owners use the insurance benefits to purchase the decedent’s percentage of the business.
An entity purchase agreement, on the other hand, works this way: The business purchases an individual insurance policy for each partner. The business, as well as the individual partners, are designated beneficiaries of each policy. If one of the partners dies, the business uses the insurance benefits to buy back the deceased partner’s share, thus increasing the value of the shares the other partners hold.
Contact Our Business Succession Planning Attorneys Now
At Shaw & Nelson, we recommend that clients creating a startup establish a business succession plan as part of the startup process. If our clients come to us with an established business, we help them to create a business succession as soon as possible, a plan customized to meet their specific needs and goals.
As your business attorneys, we will ask you questions to ensure that we understand your business objectives and the role of family members, partners, and top employees play in your company. Once we are all on the same page, we will help you create a succession plan that will make for a smooth transition and is in full accordance with your vision for the future.