Business Succession Plan
BUSINESS SUCCESSION PLANNING CHECKLIST
CONTINUITY OF MANAGEMENT, PRODUCTIVITY, AND PROFITABILITY:
1. Conduct a thorough review and evaluation of the business structure, including sole proprietorship, partnership, corporation, and limited liability company, to ascertain the effectiveness of this structure in facilitating profitable operations and the seamless transfer of ownership.
2. Assess the existing incentives designed to attract and retain key employees within the organization.
3. Evaluate the life insurance coverage for key employees to safeguard against the financial repercussions of their potential departure.
4. Analyze the customer base and the extent to which their loyalty is transferable to new ownership.
ASSURING A MARKET FOR BUSINESS INTEREST:
1. Compare the sale prices of comparable businesses, when such data is available, to inform potential valuation.
2. Investigate prevalent capitalization rates or earnings multiples that are typically utilized for the valuation of businesses within the particular industry.
3. Assess the costs associated with launching a similar business and developing it to achieve a level of size, stability, and profitability comparable to the business in question.
4. Consider enlisting the services of a professional appraiser who possesses expertise in the industry and the specific type of business, particularly if the transaction may involve related parties.
MANAGING RISK:
1. Verify that key personnel and property are insured at appropriate values, thus mitigating financial risk.
2. Ensure that if buyers intend to make installment payments, they are adequately insured for life and disability.
3. Confirm that sellers retain a substantial security interest in the business.
4. Establish provisions to address potential bankruptcy or dissolution scenarios of either party involved in the transaction.
5. Assess whether life insurance on the selling owners would facilitate a more manageable and affordable sale process.
TAX CONSIDERATIONS:
1. Engage a tax attorney or accountant to review the available alternatives and elucidate the tax consequences for both sellers and buyers.
2. Determine if any components of the transaction may result in phantom income for the sellers.
3. Explore alternatives to the complete sale of the entity, including split-offs, spin-offs, and partial redemptions.
4. Consider whether the loss of company-sponsored benefits could result in significant negative financial or tax implications for the sellers.
5. Investigate the feasibility of continuing to provide such benefits, in full or in part, through the company.
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