Business Succession Planning Part II: What Goes Into the Plan

By Chris Tymchuck
Founding Attorney

Sorry folks that this one is a little late.

Part I of this series on Business Succession Planning dealt with whether or not you need to create a business succession plan.  A quick recap: a business succession plan is needed by anyone who owns and operates their own business, whether you want to keep it in the family or not.  My reasons/justification is this: what happens if you should be injured and unable to run things?  Who keeps it going while you are incapacitated?  How do they know what to do?  Who is legally able to open, pay, or dispute bills in your absence?

Now, it is time to talk about what going into a Business Succession Plan.

A Business Success Plan should be able to articulate the following in such a manner that there is no equivocation:

  1. The ultimate goals for the business with respect to the owner(s) and the company.
  2. The transition of ownership (when transition occurs and to whom)
  3. Facilitation measures (who will assist (if anyone) the successor(s), funds transfer, etc)
  4. Relinquishment of owner(s) (acknowledgement and instructions)

The plan should outline what the original owner(s) intended for the business, who has a claim to ownership (this includes if there are partners to the business), roles and responsibilities of successor and partners, is there “life insurance” or other funds set aside to provide transition funds should the owner die (versus become incapacitated), transition triggers, acknowledgement of plan by business owners and successors.  A business succession plan should include any “Cross Purchase Agreement” between owner/partners and a how the price should be determined.  Lastly, for companies that are being handed down or will be entrusted to family members (as opposed to sold) a business success plan should include those steps required to educate the new owner/operator in business operations and any consultants or temporary managers that will assist during the transition process.

They aren’t particularly complicated documents to produce, but they must be thorough.  The best business succession plans are those that establish some transition measure prior to the owner’s death OR provide for the taxes and other expenditures that will arise.

I work with families to put together and file the appropriate legal documents required to ensure the legality of the business success plan.  I do recommend that businesses work with financial consultants to ensure that the appropriate funds and management support are available to make the plan a reality.

Next month I will post a Business Succession Planning eGuide that should clarify the content of this very important blog series in more detail.

About the Author
As a Minneapolis Estate Planning and Probate attorney I help build and protect families through the adoption, estate planning, and probate processes. I also have experience working with families on issues related to their small businesses. I know how difficult it is to find time to plan for the future and I am here to help walk you through it.