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Protecting Your Business and Your Livelihood
Do you have a business succession plan? Everyone watched COVID-19 force business owners to quickly shift the way businesses run to remain successful.
Can your business withstand the incapacity of a CEO? The divorce of a business partner? Any other unforeseen potential business disruption?
Attorney L. Reed Bloodworth, Founder and CEO of Bloodworth Law, said, “The answers will likely spur you to act quickly and carefully to protect the future of your company.
“If you don’t have a succession plan, talk with an attorney about worst-case scenarios if a CEO can’t work for a few weeks or months.”
What is a Business Succession Plan?
A business succession plan proactively outlines roles, responsibilities, and financial agreements to ensure the future of a company when major leadership changes occur.
A Plan Provides Legal Infrastructure for a Business
Succession plans provide the legal infrastructure needed for a business to survive the death of the CEO, a business partnership change, and the loss of a key employee who retires, resigns, gets fired, or is hired.
A succession plan should be included within a business operating agreement at the inception of a business. It allows a business to continue running smoothly with new or adjusted management and ownership changes so that employees, services, or products can be provided without disruption, loss of control, or revenue.
Succession Plans Provide Answers
What should a succession plan do? It can ensure a reasonable price is paid for a partner’s share of the business. This also will eliminate the need for valuation upon death because the insured agreed to the price of the business beforehand.
Watch the Bloodworth Law Video Series on what should be included in a Business Operating Agreement on the Bloodworth Law YouTube channel.
Without a succession plan, a Florida business may end with the death of an owner or make it incredibly hard for partners to control and continue running the business.
Plan for Your Business’ Succession
After surviving the pandemic, it’s imperative that your business is ready for more unexpected changes. Start by keeping the business operating agreement and succession plan up to date.
A Succession Plan Ensures the Future of Your Business
A succession plan is a strategy to prepare a business for all contingencies, including the owner’s death, a partner’s divorce, incapacity, partner buyouts, and selling the business—or parts of it. A succession plan ensures the future of your business.
Usually, the battle begins when it’s discovered that there is no succession plan or operating agreement outlining the future of a business. A business succession plan should answer all of the following questions:
- What is your business worth?
- Can you protect your children?
- Can you protect my spouse?
- What if you get divorced?
- Who is your successor?
- What happens to your business partners?
- Can you prevent relatives from inheriting your company?
- How will your business be transferred to heirs?
- Or will your business remain with partners?
- What happens to your company if you are incapacitated?
Why Should You Have a Succession Plan?
A business succession plan ensures that businesses run smoothly after company CEOs, owners, partners, and key employees die, leave for other reasons, or retire.
This can effectively prevent the possibility of an external takeover due to cash flow problems or the need to sell a business or other assets to cover the cost of the deceased’s interest.
Within an effective business succession plan is the complete understanding of crucial positions, business management, product and service knowledge, company knowledge, business relationships, organizational plans, marketing, and sales plans.
Having a plan for turning business ownership over to the next generation of business leadership ensures seamless management, revenue, and talent within the organization.
The succession plan can allow for timely settlement of the deceased’s estate, including avoiding probate and eliminating estate tax.
What If You Don’t Have a Succession Plan?
If you don’t have a succession plan and a CEO is incapacitated, the company may be unable to function. There’s no legal consent granted nor leadership defined.
What will you do if your partner or partners decide to retire early, get divorced, or sell their part of the business to someone you don’t trust?
Are you grooming someone to take over for you because you want to retire? Will your partners be in favor of this new person leading in your place?
The answers to these questions should be decided in a business operating agreement which should include a clear succession plan. Talk with Reed about how Bloodworth Law can help you establish a succession plan for the future of your business.