Planning your Business Success(ion)

If you run a small business, chances are that you have a lot of your wealth tied up in it, along with your business partners’ wealth.

Deciding to run a small business involves hard work, creativity, a great number of hours and, of course, a certain amount of risk. The successes make the sacrifice all the more worthwhile, but we don’t want to let those successes go down the drain if something goes wrong.

In real terms, the departure of one business partner is inevitable. Whether through retirement, a disagreement, maybe even a divorce settlement, or worse still, what if a departure is forced upon you due to death or illness? What happens then?

A Business Succession Plan aims to ensure that when the business relationship does come to an end, the process is fair and as stress free as possible for both the departing and continuing partners and their families.

Just as with marriages, irrespective of how good things may once have been, when business relationships end, self-interest often takes over. This makes what are difficult enough negotiations at the best of times even more stressful, legally expensive, and at times unfair.

A good Business Succession Plan will remove this uncertainty by documenting what the partners would like to happen when one partner wants to, or is forced to leave the business for any reason, as well as dealing with how any change of ownership should be funded, and exactly how to calculate the value of the business when it happens.

“Doesn’t my Shareholder’s Agreement cover this?” I hear you ask. Usually not in a way that is meaningful at the time of exit. Shareholder’s Agreements and Partnership Agreements can be great at detailing things such as voting rights, issuing capital and the responsibilities and liabilities of parties, but often fall down in the area of the planned succession of the business when someone needs to leave.

Consider this: Do you and your business partners have an agreed and documented process including valuation and funding arrangements to deal with:

  • Resignation or Retirement of a partner?
  • One partner’s extended absence from the business?
  • Breach or Default by a partner?
  • Death of a partner?
  • Temporary or Permanent Disability of a partner?

If not, then a Business Succession Plan could be exactly what you need. Your Business Succession Plan will look at not only these items, but will help you consider repayment of debt (including loan accounts) and the release of personal guarantees, protection of cashflow so the business can continue to run effectively, appropriate restriction of trade terms, and ongoing income for partners who cannot work.

Talk to Rubiix today about having LifeGuard Financial Services help with your Succession Planning.

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