Business Succession Lawyer in California
At LA | Estate Plans, our estate planning lawyer based in Los Angeles handles business succession plans for business owners. We aim to keep your business successful regardless of any changes you face over the years. Schedule Your Peace of Mind Planning Session to make sure your estate plan has all the tools you need to safeguard yourself, your loved ones, and your business.
What Is Business Succession Planning?
Common Risks Businesses Face without a Succession Plan in California
Knowing the risks can help you avoid them. Many risks exist when business succession plans are not created for a small or family-owned business. Some of the more common risks include:
- Diminished value of the business. A business’s success is often based on the relationships that are nurtured over the years. When a trusted owner dies or exits the business, clients and customers want assurances that the business will maintain the same level of quality services, or else they will leave, too.
- Loss of trust. If you do not have a business succession plan in place, transitioning from one owner to another will take more time. But time is money, and the longer it takes to recover from the loss of the owner, the more likely clients, customers, employees, and investors will lose their faith in the business and go elsewhere.
- Loss of experienced and skilled employees. If leadership fails due to a lack of a succession plan, you put your greatest resource at risk: specialized employees. Skilled and experienced employees are in high demand and so they may look for professional opportunities elsewhere.
- Vulnerable to competitors. If a succession plan is not in place and a hungry competitor becomes aware of the situation, they could plan to take over your business to increase their market share.
- Potential for conflict. When a business owner dies or exits a business without a succession plan in place, the core values and mission of the business may be questioned. Without the right leadership and quick decision-making necessary to keep the business intact, conflicts may arise among personnel, employees, and others.
- Unqualified new leadership. In the absence of a succession plan, mistakes may be made in the rush to fill the gap. If the new person hired to fill the loss is not capable and qualified, it can facilitate all of the above risks.
Again, these risks are just a few examples of what a strong, solid business succession plan can help you avoid.
Types of Business Succession Plans
Long-term Succession Plans
Emergency Succession Plans
How to Choose a Successor for Your Business in California
Tips for Choosing a Successor
Documents You May Need for a Business Succession Plan
It may require existing governing documents – like a partnership or operating agreement or articles of incorporation – to be updated. It may also involve drafting new documents including:
- Appraisals or business valuations
- Entity purchase agreements, where a company takes out insurance policies on each partner so that in the event of a death, the insurance payout is used to purchase the deceased partner’s shares
- Buy/sell agreements, enabling the surviving partners to buy the deceased’s partners shares from his or her family
- Employee stock ownership plans, allowing employees to purchase the departing owner’s interest via shares
- Management buyout plan, allowing the management team to buy the company
The circumstances of a business and its specific succession plan will determine the documents needed to execute it. A business succession lawyer can advise you on the relevant paperwork in your situation and draft any technical documents for you.
Key Elements of a Business Succession Plan
Business succession plans will and should be unique to your business and your needs. That said, there are some common, key elements that should be included in any and all business succession plans.
- Strategic Plan. A strategic business plan explores the current state of the business and its future, including potential risks that should be considered and proactively addressed.
- Financial Plan. This plan should determine financial goals and resources as well as financial assets, cash flows, taxes, and projected growth, among others specific to your business.
- Ownership or Leadership Transition. Multi-year strategies are needed to address who will own the business in the future and how the transition of ownership will be handled or proceed.
- Successor Identification. Three potential outcomes for a transition exist: (1) family member(s); (2) employee(s); or (3) a third party. A strategy must be put into place for the option you choose. Things like skills, impact on the business, resources, and more must be considered.
- Governance. If your business is a family-owned one, you want to address what governance will look like: does it involve an advisory board or board of directors or is it more like a family council?
Challenges to Business Succession Planning in California
Business succession planning is not without its challenges, especially when it comes to family-owned businesses. Issues for consideration include:
- Family dynamics
- Lack of a competent heir within the family
- Tax issues, such as the transfer of ownership within a family, can generate large tax liabilities
- Conflicting family goals or ambitions, where family members hold different visions for the future of the business
By obtaining professional advice when creating your business succession plan, you can consider these issues and find out how best to manage them in your situation.
Get a Smart Business Succession Plan: Contact an Estate Planning Attorney in Los Angeles Today
Risk reduction is what a smart business succession plan is all about. At LA | Estate Plans, our business succession planning attorney in Los Angeles will take the time to build a solid succession plan intended to significantly reduce risk. Schedule Your Peace of Mind Planning Session to learn more.