KEDM Broadcast - Succession Planning

In the wake of devastating life events, the survival of a small business is at risk. Many small business owners have no strategy to respond to the needs which follow a divorce, a death, or a disabling event. No matter how unlikely you believe it is that you will go through one of these events, the impact could be disastrous for you, your family, your business, and everyone associated with it in the absence of a succession plan. A recent article by The Succession Planning Group offers the following guidance.




Based on recent data from the National Center for Health Statistics, Centers for Disease Control and Prevention, a marriage today has a 36% chance of ending in divorce. Unless you have a prenuptial agreement, in the event of a divorce, your spouse is probably entitled to at least a portion of your interest in the company; you may even have your ‘ex’ as a partner.




In a succession plan qualifications for ownership of the company can be spelled out including a resolution for each spouse. The plan can also spell out what would happen to the business in the event of a divorce of a partner and could stipulate the creation of a contingency fund that would provide the funds needed to buy out the interest of the spouse of the owner or a partner.




Regardless of how it happens, a disability can affect the ability of a business owner to continue to manage a business or to make the same level of contribution to the business. Every business owner or partner needs a plan to specify how a disability will affect ownership of the business, contribution to the business or exit from the business. The succession plan should address your future and the company’s future.




The disability portion of your succession plan will address many contingencies, but should include directions on:


• How the decision will be made about the merits of you leaving the business

• Funding disability insurance to pay for your future

• Funding to get the company through a transition

• Funding for partners to buy out your interest in the company according to a succession plan.




Death needs to be considered at every age. The issue that must be addressed in succession planning is what will happen to your business partners, the company and your family after your death. Even if you are young and the likelihood of your death is low, it is important to keep in mind that you have far more options and opportunity if you plan early. The older you are the more expensive life and disability insurance will be to purchase if it can be obtained at all.




Designate a successor for your role in the company and as part of a clear transition plan. Provide for incentives to keep key employees from leaving the company during a transition. Provide adequate cash reserves and insurance to allow your partner or successor to buy your share of the business from your heirs and to carry the business until your successor can demonstrate the stability of the company to lenders, vendors and customers.




Death, disability and divorce are the three things most business owners think of when a conversation about succession planning is begun. Unfortunately, however, only 10 to 20 percent of the business owners who need a succession plan actually have one. If you are one of those without a succession plan, don’t you think it’s time to do something? For over 30 years, we have worked with entrepreneurs and business owners who are looking to start or grow their small business. For no-cost assistance with your business needs call us to schedule an appointment at 342-1224 or visit us at www.lsbdc.org. Today’s thought from the Small Business Corner has been presented by the Louisiana Small Business Development Center at ULM.