Smart business owners know the importance of a Business Succession Plan. Business Succession Plans are the well thought out instructions on what needs to be done in the event of a worst-case scenario involving a key member to the business’s team. Key members generally include the owner or partners of the business. A Business Succession Plan lets the other members of the company know important information such as passwords, bank accounts or instructions on how to run the business. It gives a clear chain of command as to who can step in and fulfill important roles. The plan explains what to do with outstanding business and how to deal with vendors. Most importantly, it explains how the company will continue in the event one of the owners passes away. Effective plans carefully document how surviving family members should be bought out of a business (if necessary) and at what dollar amount. Essentially, an effective Business Succession Plan lets a business and the families that own a business, continue in the face of tragic or surprising circumstances.
While many American businesses have a Business Succession Plan in place, it is alarming how many have not funded the plan. Funding a Business Succession Plan means there are actual dollars in place to carry out the wishes outlined in the plan should a Business Succession Plan come into play. Without money at the heart of the plan, there is no way the plan can be executed as intended. As much as one partner may want to pay his former partner’s widow his share of the company, it may be difficult due to cash flow.
Funding a Business Succession Plan most commonly happens through life insurance. Generally, the key employees will have a life insurance policy that, in the event death, pays out to the business, allowing the business in turn to pay out the family members, hire new help, pay off company debt or simply continue. Business Succession Plans should be drafted by competent business attorneys who are familiar with your type of business. Business Attorneys usually rely on insurance companies who specialize in this type of policy to assist their clients in funding their Business Succession Plans.
If you are reading this blog and you are a business owner, consider how important a Business Succession Plan might be to your employees, partners and family. i4SB can help you find the right policy to meet the needs of your succession plan.
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