Selling Your Business Versus Succession Planning: What’s The Difference?
Are you retiring? Do you own a business? If so, you have options. Many choose to sell their business, but you might also elect to set up a succession plan to pass the business on to someone else. Which strategy is the optimal one for your situation? Selling the business versus setting up a succession plan is not an easy choice. You will need to consider your options thoroughly and choose the right fit for you, your business, and anyone who might take over.
Pros and cons of selling the business
- Pros – Selling the business is a good way to finance your retirement by providing a substantial nest egg. It’s also a good way to take a lot of stress off your family. It can give you and your family peace of mind. In addition, you won’t have to worry about the business anymore. You can move on to the next chapter of your life.
- Cons – The foremost downside to selling your business outright is that you will no longer have any control over what will happen with it in the future. The new owners can do as they please, including selling the business out to a major corporation, firing everyone, cutting pay, or cutting corners and thus destroying your business’s reputation. If this doesn’t sit right with you, then you might consider developing a succession plan.
Options for a succession plan
It’s common for family business owners to want to pass their business on to their children. However, what if your children aren’t interested in operating the business? Passing the business on to a family member who actually wants it is another option. You might consider your extended family for this endeavor. Below are the options for your succession plan.
- Management buyout – You’ve established a successful business. One way to ensure that it stays that way is to set up a management buyout. This means selling the business to the people whom you hired to run it. Managers can purchase stock, and the company will buy the rest. This is the best way to keep the business running exactly as it was. Additionally, you can sell part of the business to the employee stock option plan (ESOP), which gives retirement benefits to employees.
- Buy-sell agreement – This transfers the business to an appointed individual at a set price with a contract. This still constitutes selling the business, but you can add conditions and choose the person you’re selling to.
- Private annuity – A private annuity allows you to transfer your stake in the business to buyers or family members, who pay you for the rest of your life. This removes the business as an asset from your estate.
Talk to a Columbus Corporate Lawyer Today
Kohl & Cook Law Firm, LLC can help you sell your business or set up a succession plan. Call our Columbus corporate lawyers today to schedule an appointment, and we can begin discussing your next steps right away.
