As a business owner, one of the first things you must focus on is how you intend to pass down your business. Your succession plan should be one of the first things you write. After all, no one knows when they will need or want to leave their business.
What are your options when it comes to business succession? And which one would serve your intentions and desires the best?
Passing it along the family line
The Small Business Administration looks at ways of passing on a small business. Of course, many people often think of keeping businesses in the family, especially when it comes to small ones. This might be your favored option. If you choose to pass it on, you might be able to classify it as a gift and avoid the hassle of a buy-sell arrangement. Beware that this could get you saddled with gift tax, though.
But what happens if you do not have a relative who wants to take on the responsibility of owning and running a business? In this scenario, you will likely need to sell the business. You can choose many entities to sell to, such as:
- A trusted business partner or co-owner
- A key employee who has spent many years with the company
- An interested third party
- Other shareholders in the company
Each option has its pros as well as its cons. For example, you know and trust your business partners and employees. You have a good sense for how they will run the company. But they might not have the money or desire to buy and run a business. On the other hand, a third party can provide the money. But you do not know how they will run things.
In the end, you must look at your priorities and sort your choices accordingly.