SCORE Small Business Blog

Planning: Four Questions That Business Owners Should Be Asking Themselves

What will happen to your business at your death or retirement?

Answering this question will help you explore your succession plans—your hopes and dreams for your company after you leave it, either as planned or due to an unplanned death. Surprisingly, a fairly large number of businesses end up in liquidation or are forced to sell their assets to pay off their debts. Liquidation normally never allows you to maximize the sale of your assets. In fact, the seller may only realize 50 or 60 percent of what the sale would realize if the assets had been sold under “normal” conditions. However, if a successor is properly identified in advance of retirement or an unforeseen event, the successor can make sure the transfer of the business will occur without any issues. This underscores the importance of having a Buy-Sell agreement requiring one party to sell and another party to buy ownership interest in a business in the event of certain triggering events. To provide cash for the transition, the agreement often can be funded by disability income and life insurance to allow ownership and control to be maintained. Remember, the primary purpose of the agreement is to provide a smooth transition between a disabled, retired or deceased shareholder and the survivor(s). A well thought out and funded agreement also may provide security to business creditors and a safe and consistent working environment for employees.

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