What is the importance of succession planning for business owners? Why should you be concerned about the development and implementation of succession planning if you own a business or a significant interest in an LLC, S Corporation or C Corporation?

Your business is a valuable asset, perhaps the most valuable asset you control. It is not only an income producing venture, but your company is also a legacy that you can leave to your heirs and beneficiaries. You have poured your life's work into the business. Doesn't it make sense to protect that company and position it to seamlessly transfer to your designated beneficiaries or to ensure its ongoing successful operations should you become incapacitated or in the event of your passing? This is the importance of succession planning for San Diego business owners.

The importance of succession planning is directly associated with the continuity of the business as well as the overall strength of the company. Who is prepared to step into leadership if you or one of your senior officers becomes incapacitated, seriously ill or passes away unexpectedly?

Is the Future Internal or External? Is There a Future At All?

Your business succession plan should directly address the incapacitation or the death of a principal. Your succession plan should identify a specific successor and/or the process for transitioning the company or positioning it for sale.

What are the specific skills and key areas of leadership, knowledge and expertise required to ensure the continuity and continued success of the organization if a key player is no longer able to perform their duties? Are there any existing employees who either possess or may develop these areas with the proper coaching and investment? Do you need to consider identifying and attracting outside talent to meet these requirements now or in the future?

Did you realize that without proper estate planning the appraised value of the company must be included as part of the probate process. If the heirs wish to maintain ownership they would need available funding to pay the taxes and fees required to do so. Selling a business out of probate virtually ensures a low valuation and the sale of the business at a heavily discounted price (if it is able to be salvaged at all).

The best strategy is usually to place ownership interests or the company itself within a trust (if you have not already done so). Trusts may be used to ensure continuity or to divide assets between heirs and beneficiaries or perhaps your company’s employees if you so desire.

Does Business Succession Planning Require Insurance?

Should the succession plan include some form of insurance? Life insurance can provide working capital for the company or liquidity for the owner’s spouse and heirs that would be required to protect the ownership position within the company if not the business itself. Insurance proceeds would not create a taxable event for either the recipients or the business itself.

Aren’t life insurance proceeds included in the person’s estate and subject to probate as well? It is possible to create an Irrevocable Life Insurance Trust (ILIT) that will not only purchase and actually own the associated life insurance policy, but protect the business ownership viability and interests as well. This is especially true if you have children, some of whom may be involved in the company. The ILIT is not subject to probate and may provide the resources to maintain control of or continuity of the company while providing for all heirs and beneficiaries of the trust.

You should discuss the legal, tax, trust and estate planning strategies required to protect your business, reduce taxation and provide for your financial retirement needs with an experienced and skilled professional team. The various individual aspects and perspectives of each profession will often compete with one another. Look for an advisor or team that can integrate these professional areas of expertise to craft a tailored solution for your unique situation and requirements.

What is the importance of succession planning for business owners? Business succession planning protects all of the hard work, time and investment you’ve made in your business life. What do you want to happen to your business if you become incapacitated or pass away? Do you intend to pass your interests to heirs or beneficiaries, or even the employees themselves? If you intend to sell it instead of passing it on, what is the best way to structure the ownership interest to minimize taxation, while preserving the maximum amount of wealth for the rest of your life and for future generations?

A well-crafted business succession plan retains control over all you have worked so hard to build and protects the interests of your spouse and/or heirs and beneficiaries. Succession planning protects and strengthens the company and increases its value. Think of all of the investments and security assets you’ve put into place to protect facilities and insure the company in the event of theft, fire or other natural disasters. Isn’t it important to take the time and effort to protect your ownership interests and the present and future needs of your spouse, children, grandchildren, beneficiaries and heirs?