What is a business succession plan in Pennsylvania?

business plan

To learn more about how a business succession plan works, continue reading, and then give Friedman Schuman a call today to speak with one of our dedicated and experienced Pennsylvania estate planning attorneys. We are on your side each step of the way. Here are some questions you may have:

How does a business succession plan work?

A business succession plan is a document that is used to guide through a shift in ownership by providing step-by-step instructions. If a purchase is involved, the sale price and purchase terms are clearly summarized, relieving stress for the departing owner’s family. A well-crafted succession plan seeks to help everybody—the departing owner, the business, the employees, and the successor.

A small business succession plan should include the following:

  • A succession timeline: Details regarding the circumstances when a succession would take place and specific dates as applicable.
  • Your potential successors: A list of potential successors, including strengths and order of consideration.
  • Formalized standard operating procedures (SOPS): A collection of documents, procedures, employee handbooks, and training documentation.
  • Your business’s valuation: The valuation of your business should include the method by which is valued and be updated frequently.
  • How your succession will be funded: Details including whether the succession is funded through life insurance, a seller’s note, or other funding options.

How should I create a succession plan?

There are several important steps needed to construct a comprehensive small business succession plan, and many ways to go about creating your plan. Some business owners may choose to create their own succession plan, while others may wish to use the help of a professional, depending on the complexity of the plan and the business.

If you are creating your plan yourself or hiring a professional, the five steps to writing a succession plan include the following:

  • Determining timeline: Determine when the succession should take place, either on a predetermined date or in the event of death or disability.
  • Choosing your successor: If this is not a purchase by a specific party, think about choosing three or more potential candidates, and filling out a profile for each.
  • Formalizing your standard operating procedures: Document your standard operating procedures (SOPs), including an organizational chart, employee handbook, operations manual, and any other recurring meetings or processes.
  • Valuing your business: Many methods exist to value your business. Once you have figured out your business’s value, it should be updated often.
  • Funding your succession plan: Define a specific course that lays out how the successor will purchase the business. Options include life insurance, loan, and seller financing.

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