While you may be very proud of the small business you have curated and grown over the years this does not necessarily mean that your children will want to carry on the business after you retire or pass away. You do not want the business you worked so hard to build to fall apart upon your death. For this reason, it is important to execute a business succession plan sooner rather than later.
What is a business succession plan?
A business succession plan dictates who is to run your business after you retire or pass away. This involves choosing a successor and valuating your business. The successor does not need to be related to you. If you have business partners, you may simply choose to sell your share in the business to them through a buy-sell agreement.
Transferring ownership through life insurance
Life insurance is the standard means for transferring your share in your business to your partners or your successor. Once the business has been valuated, life insurance policies will be purchased on all partners. If one partner passes away the death benefit proceeds from the life insurance policy will be used to buy out the deceased partner’s share and will be distributed evenly between the remaining partners.
Why should you have a business succession plan?
There are several reasons why having a business succession plan is important. First, by valuating your business before your death you can ensure you and your partners agree on how much the business is worth. Second, life insurance benefits are immediately passed on to the beneficiaries negating the need for liquidity and eliminating time constraints. This can help prevent external takeovers or the need to sell business assets. Finally, a business succession plan can help ensure the deceased’s estate is settled in a time-efficient manner.
Learn more about succession planning
Having a business succession plan in place while you are still working can be an invaluable part of estate planning, especially if your children do not want to carry on the business or if you have one or more business partners. You worked hard during your lifetime to establish your business in Geneva. With proper planning you can ensure your business moves forward even after you are no longer a part of it.