Search Site
Menu
Four Reasons to Fund Your Business Succession Plan

It is an incredible accomplishment for business owners to craft a business succession plan establishing the structure that will transition the business out of the hands of the current owner(s).  However, even the best business succession plan will be considered a failure without a proper funding mechanism.  The considerations in support of setting up a method to fund your business plan are easily overlooked.

First, it should come as no surprise to anyone that the death of a family member is a disruptive and costly event.  This issue is compounded when the family member is the sole or primary provider.  An established source of liquid funding will provide a source to fund the expenses and meet your family’s daily needs while they sell the business or transition control of the business.

Second, a business has ongoing obligations that must be met regardless of the owners passing (e.g. payroll).  Generally, meeting these obligations is important whether you intend to sell the business or continue to operate it as a going concern.  However, the business may suffer a severe lag in income for the first 6-9 months after an owner’s passing because the business’ work flow is driven by that owner’s relationship and/or reputation.  Accordingly, a liquid source of funding may be essential to keeping the business operational or marketable during that time period.

Third, liquid funds may be necessary to fund the Buy/Sell Agreement between the business owners.  Many companies have multiple owners that do not want to be in business with co-owner’s spouse or kids.  A Buy/Sell Agreement is a valuable tool for determining who will own the business if one co-owner dies.  However, a Buy/Sell Agreement is much less useful if there are no funds available for the company (or other owner(s)) to exercise their rights to purchase under the Buy/Sell Agreement.  An established source of funding will ensure that the owner(s) can utilize the Buy/Sell Agreement for its intended purpose.

Fourth, business owners may face uncertain estate tax obligations.  Estate taxes may be owed at the time of the business owner’s death.  An established source of funding may be invaluable for the purpose of paying those taxes without having to liquidate assets to generate revenue.

The best way to fund your business succession plan will depend on your business, its operational requirements, the structure of your succession plan and your ultimate goals.  Take some time to discuss these ideas with your planning professional to make sure you have a plan in place that maximizes the benefits provided by these tools.

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact a Dedicated Texas Business Lawyer To Schedule a Consultation
Call 281-367-1222 or contact us online to schedule a meeting.

Strong In Action

  • Spring 2019

    The Strong Firm represents borrower in $42.3 million HUD construction loan for multifamily real estate development in Walton County, Florida.

    Read More
  • Spring 2019

    The Strong Firm acts as legal counsel for borrower in $32.1 million HUD construction loan for multifamily real estate development in Conroe, Texas.

    Read More
  • Spring 2019

    The Strong Firm aids borrower in $31.7 million HUD construction loan for multifamily real estate development in Nueces County, Texas.

    Read More
  • Spring 2019

    The Strong Firm represents borrower in the refinancing of a $3.57 million commercial mortgage-backed security for a commercial office facility in Montgomery County, Texas.

    Read More
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  • Peer Rated 2019 Award

Recent Blog Posts

2019 Legislative Update – Texas POA Laws

In odd numbered years, Texas property owners associations (POAs) must consider any new laws affecting POAs that became effective following the Texas legislative session earlier that year. For 2019, a few such laws recently went into effect specific to residential POAs (but excluding condominium associations). HOUSE BILL 234 – Protection of
Read More
2019 Legislative Update – Texas POA Laws

Wrapping Up a Decade: Meaningful New Year’s Resolutions

As 2019 comes to a close, it’s a good opportunity to reflect on what we’ve accomplished and make resolutions for what we hope to do in 2020. I have never been a fan of New Year’s resolutions as they often seem like short-term, immeasurable goals. Things like “I am going
Read More
Wrapping Up a Decade: Meaningful New Year’s Resolutions

Not Worth the Paper It’s Written On

We have all heard the saying that something is “not worth the paper it is written on.”  This is usually said about a contract that is unenforceable or even if enforceable, it may have no value because the party has no ability to pay or perform under the contract.  Many
Read More
Not Worth the Paper It’s Written On

“So…What Happens to My Bitcoin When I Die?” Modern Estate Planning for Digital Assets and Cryptocurrencies

Millennials have complicated everything. Socializing in person wasn’t enough, so they created Facebook. Dollars weren’t enough, so they created Bitcoin. Every new app, technology or cryptocurrency brings with it more uncertainty legal uncertainty around these digital assets. Are they currency? Are they property? Can they be gifted? Can they be
Read More
“So…What Happens to My Bitcoin When I Die?” Modern Estate Planning for Digital Assets and Cryptocurrencies
  • Video Vault


    Watch videos done by our legal team to gain a better understanding of your legal needs. Our lawyers give video insight into areas such as Real Estate, Business Law, Mergers & Acquisitions and much more.

Pay Retainer Online

Use our easy-to-use and secure online payment feature.
We accept all major credit cards.

Pay Your Retainer

Contact us

Quick Contact Form