What happens if you are unable to manage your business? Who will take over your business, and how will it be collected?
A solid business succession plan will help ensure your business is transferred more efficiently.
Business continuation planning is also known as business succession planning. It’s about planning for the continuation and continuation of the business following the death or disability of an owner. A business succession plan clearly outlines what happens during death, retirement, or disability.
Good business succession plans often include, but are not limited to:
*Goal articulation: Who will be allowed to own and manage the business?
Business owner’s estate, retirement, and disability planning.
*Process articulation: Who to transfer shares to and how to do so, as well as how the transferee will fund it.
*Analyzing if existing life insurance or investments could provide funds for ownership transfer. What are the gaps?
*Analyzing shareholder agreements
*Review the corporate structure, strategy, management abilities, and shortfalls.
What are the reasons business owners should plan for business succession?
*The business transfer will go more smoothly if all obstacles are anticipated and dealt with.
*Income for business owners through insurance policies, e.g., *Income for the business owner through insurance policies, e.g.
*Reduced chance of forced liquidation due to sudden death of permanent disability
Funding is necessary for some aspects of a business succession plan to be successful. There are several ways to fund a succession plan, including bank loans, investments, and internal reserves.
Insurance is preferred because it is the best and most cost-effective option.
In the event of the death of one owner, life and disability insurance cover each owner. The proceeds will be used to purchase the deceased owner’s business shares.
Owners can choose to own their insurance policies through either a cross-purchase agreement or an entity-purchase agreement.
Cross-purchase agreements allow co-owners to purchase and own policies on one another. The policy proceeds of an owner who dies would be paid to their surviving owners. They will then use the proceeds to purchase the departing owner’s business share at a price previously agreed to.
This type of agreement does have its limitations. One of the critical issues is that it can be difficult for co-owners to have separate policies. Due to the significant age disparity among owners, each policy’s cost may differ. This can lead to inequity.
An entity-purchase agreement is preferred in this situation.
Entity Purchase Agreement
An entity-purchase agreement allows the business to purchase a single policy for each owner. The owner becomes the beneficiary and the owner of the policy. The company can use policy proceeds to buy the business share of the owner who has died. The business absorbs all costs and shares equity with the co-owner’s best site.
What happens if you need a business succession plan?
Without a business succession plan, your business could suffer severe consequences if you are suddenly disabled or die.
These scenarios could happen if there is no business succession plan.
If the business is divided among business owners, the remaining owners could fight for the share of the departing owner or the percentage of a business.
A potential dispute could also arise between buyers and sellers of the business. For example, the buyer might insist on a lower selling price than the seller.
The company’s operations could be disrupted if the owner is permanently disabled or has a critical illness. This could also affect the clients’ faith, revenue, and morale.
The income stream will stop if the family’s sole breadwinner dies unexpectedly.
Keep your business from crumbling if you are there. A business succession plan can be a great way to ensure your family’s financial security.
Financial Planning Singapore
You can contact any of our financial advisors for more information on business succession planning.