As the owner of a construction firm, you have probably thought about retiring at some point and handing off the business to a family member or a partner or even selling out to another company. Whether you think about retirement a lot or a little, it makes sense to start planning for that now. And a key component of your planning has to be a succession plan.
A succession plan can help ensure that the business will continue to thrive after you are no longer involved in the company and will also help facilitate a smooth transition to the new leaders. From a financial perspective, it should also help maximize the value of the company and the financial legacy that is passed on to your heirs.
The Goals of a Succession Plan
While no two situations are exactly alike, most well-designed succession plans should be crafted with these objectives in mind:
- Protect the company’s value and ability to compete
- Minimize conflicts among family members
- Reduce gift and estate taxes
- Achieve the owner’s retirement goals
- The Elements of a Succession Plan
- It is important to be proactive with your succession planning. It has to be a deliberative process carried out long before you intend to retire. Focus on these elements of succession planning:
1. Establish a Value: It’s likely that the business accounts for the majority of your net worth and cash flow. However, if you don’t know what your business is worth, it can be impossible to plan for your retirement and the transfer of your wealth. You will need professional assistance to establish a value for your business. In general, its value will consist of assets such as buildings, equipment, bank balances, investments, and accounts receivable. Your company’s value will also be represented by your expertise, relationships, and reputation.
Establishing a value can also help you to identify what factors are driving the growth of your business. The sooner you identify these value drivers, the more time you’ll have to focus on them and help boost the long-term worth of your business. Determining your company’s value can also help you plan for the most tax-efficient way to transfer wealth to your heirs.
2. Prepare the Next Generation of Leaders: If you want your business to prosper after you’ve retired, it’s important to identify and prepare those individuals who will take leadership roles in your company early in the process. A formal succession plan can help attract and retain those individuals who have the skills and abilities to take your firm to the next level. If you intend for family members to eventually take control of your business, your succession plan will have to spell out specifically who you want to succeed you, their responsibilities, and what roles, if any, other family members will play in the business and its decision-making. Family business experts stress that regular, open communication with all family members is critical in this process.
3. Have a Buy-sell Agreement: A buy-sell agreement is a contract between the owners of a business – or between the owners and the business itself – that outlines what will happen to each owner’s interest in the business should an owner die, become disabled, or retire. A buy-sell agreement can ensure that your family or other beneficiaries will receive a fair price for your business interest. It can also help with an orderly transition and management of your firm, create a market for closely held stock, and establish the value of a business interest for federal estate tax purposes.
We Can Help
We would be happy to work with you and your attorney to develop an effective succession plan that will meet your goals for the future of your company.