Top Three Business Succession Planning Mistakes To Avoid In Massachusetts
Are you a small business owner in Norfolk County or elsewhere in the Greater Boston area? If so, it is crucial that you have a comprehensive succession plan in place. At Fisher Law LLC, we have extensive experience with succession planning for small businesses. Here, our Norwood business succession planning attorney highlights the top three mistakes to avoid in Massachusetts.
What is a Business Succession Plan?
As a starting point, it is important to understand what a business succession plan is and how it works. J.P. Morgan explains that a business succession plan is a legal and operational strategy that governs what will happen to a company when an owner retires, becomes incapacitated, or dies. Along with other things, it will typically clarify who will assume ownership and management authority and set the process for transferring those interests. The plan often includes buy-sell agreements, clear methods for valuation, and funding mechanisms to facilitate an orderly transition.
Mistake #1: Not Creating a Formal, Written Business Succession Plan
A general plan written down on the back of a napkin (or kept only in people’s minds) is not good enough for business succession planning in Massachusetts. Many business owners assume that a general estate plan will adequately address the future of their company. In reality, a will or revocable trust often does not provide the operational guidance necessary to transfer ownership and management of an active business. Without a formal succession plan, ownership interests may pass to heirs who are unprepared or unwilling to manage the enterprise.
Mistake #2: Not Clarifying Business Valuation and Buyout Terms
A succession plan should clearly and unambiguously establish how the company will be valued and how ownership interests will be transferred to the next generation or to co-owners. Without a defined valuation method, a dispute is not only possible, it is reasonably likely. In closely held companies, disagreements over value can delay or derail the transition entirely. A well-structured plan typically includes a buy-sell agreement that identifies a valuation formula or appraisal process. It should also address funding mechanisms, such as life insurance, to ensure that the successor has the financial ability to complete the transfer.
Mistake #3: Waiting Too Long to Plan for Leadership Transition
A proactive business succession plan is the best strategy for a business succession plan. Indeed, timing is one of the most overlooked aspects of comprehensive succession planning for small business owners in Massachusetts. Too many people delay planning until retirement is imminent or a health issue arises. At that point, the company may have limited time to prepare the next generation of leadership. A strong succession strategy should include a transition timeline that allows successors to develop the skills and authority needed to manage the business.
Contact Our Norwood, MA Business Succession Planning Lawyer Today
At Fisher Law LLC, our Norwood business succession planning attorney is a knowledgeable, diligent advocate for clients. If you have any questions about business succession planning, please do not hesitate to contact us today for a completely confidential, no obligation case evaluation. We provide business succession planning services throughout the Greater Boston area.
Source:
jpmorgan.com/insights/business-planning/introduction-to-succession-planning-for-business-owners
