Ross Caruso of WRS provides a run down of Business Succession Planning (click to read his blog).

Purpose of business succession planning

The key objective of a comprehensive Business Succession Plan is to ensure that the business survives even after the death or critical illness of one of its principals.

In simple terms, it provides:

• a terminating owner (or their estate) with the option to sell their interest in the business to the remaining owner(s)
• the funding mechanism for the remaining owner(s) to purchase it.

These benefits are achieved by implementing a formal agreement. This eliminates concerns by creating ready buyers and sellers for the business at a fair, pre-determined price. In establishing such arrangements, the participants define the circumstances that would trigger the sale and the agreed value. They agree on the legal documentation required and set up a funding plan.

Benefits

• A buy/sell provision within the Business Succession Plan provides for business continuation with a minimum of disruption in the event one or more

• owners need to exit at short notice.

This plan:

• provides the business with every chance of survival
• ensures the terminating owner (or their estate) receives true value after tax
• allows for an orderly transition of ownership rather than forcing a fire sale
• helps retain key employees
• may reduce or eliminate the Capital Gains Tax (CGT) and stamp duty issues typically associated with mandatory agreements.

How it works

Even with a Business Succession Plan to ensure the transfer of a business interest upon death, all problems are not solved .. The remaining owners need money to buyout the deceased’s family’s interest.

A number of funding mechanisms are available. The most successful is a combination of:

• Life insurance