We can all agree the worst time
to make an important decision is on the spot.
Often times this is when the emotional brain takes over for the rational
brain and the best possible decision may not have been considered. Ideally a business succession plan is constructed
when a partnership is formed, but we live in the real world and many businesses
may not have realized this at that time.
Businesses often get busy trying to get profitable and never end up
coming back to this. Generally speaking,
there are 4 situations to consider succession planning for, each of which may
require a unique solution of their own.
Retirement:
When do you plan to retire? Do you plan to retire and no longer work or will you retire to move on to a new phase of your work life? In either situation leaving the remaining business partner with adequate funding so that a rash decision doesn’t have to be made on the spot is the real purpose of a great succession plan. Seeking and planning for proper retirement funding is critical to assuring cash flow will not be penetrated and the clients are not left with a surprise from the business they’ve come to appreciate and trust.
Death:
In the event of a business
owner’s death a few considerations must be examined and included in the overall
business succession plan. For example,
will the partner’s spouse now become
part owner of your company? Do you or
they want that to happen? Talk to your
financial advisor to discuss the best method of funding a buy/sell agreement
that would leave both the business and the spouse with adequate funding to
perform the arrangement agreed upon.
Disability:
Death is certain and a triggering
event most of us will first consider; however, there is a chance that you would
suffer an injury or illness that makes it impossible for you to continue
running your business prior to retirement.
This disability could be total or partial though in either event it is
suggested to consider both situations as possible. In the event of a partial disability will you
still perform certain duties of your role in the business, who will take over
the remaining responsibilities and how with that person’s time and compensation
be funded?
Early Exit:
This final category is really a
catch all for other less common reasons a business may need to enforce a buy/sell
agreement. Some of these triggering events
may be divorce, personal insolvency or bankruptcy, criminal conviction, loss of
professional license or termination of employment.
When creating
your succession plan with your Certified Financial Planner it is important to
consider if each triggering event will produce the same reaction. Example, would divorce and death both provide
the same benefits of the buy/sell protection? One scenario may call for change of
beneficiary whereas the later may call for estate tax mitigation. Again, we can all agree that making a decision
at the onset of one of these events may not be the most appropriate time. Working with your Certified Financial Advisor
could fairly make the list of your current short term goals with either a new
succession plan or as a review of your current succession plan.
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Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes) and Barron's (S&P 2014 total return); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment. Securities offered through First Heartland Capital® , Inc. Member FINRA/SIP
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes) and Barron's (S&P 2014 total return); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment. Securities offered through First Heartland Capital® , Inc. Member FINRA/SIP
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