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

Legislation Authorizes Paid Sick Leave for Workers Suffering from Coronavirus

New legislation passed in response to the COVID-19 pandemic allows certain workers to receive paid sick leave even if their employer previously did not provide it. In March, the federal government enacted the Families First Coronavirus Response Act (FFCRA). This law assists employers that give their employees paid time off
Read More
Legislation Authorizes Paid Sick Leave for Workers Suffering from Coronavirus

Lenders Suspend Home Foreclosures Due to COVID-19, But What Happens Next?

Many large financial institutions are suspending foreclosures because of the massive economic damage caused by COVID-19. Some banks have stopped proceedings indefinitely. Others have set time limits for foreclosure suspensions such as 60 or 90 days. Even as health and financial issues remain uncertain, this is a good time for
Read More
Lenders Suspend Home Foreclosures Due to COVID-19, But What Happens Next?

How Can I Create Estate Planning Documents During the Pandemic?

Even in its first few weeks, the COVID-19 pandemic caused many people to examine or reassess what is most important to them. The need to prepare in case of an emergency or untimely death has been highlighted by the tragic losses occurring around the country. What can you do if
Read More
How Can I Create Estate Planning Documents During the Pandemic?

Complying with Corporate Annual Meeting Requirements during the COVID-19 Quarantine

How do you hold a corporate annual meeting when the entire country is in lockdown? On the surface, it might seem like a simple matter of using a favorite video conferencing tool and perhaps checking to see if it’s been hacked. Annual meetings for corporations are more than get-togethers. They
Read More
Complying with Corporate Annual Meeting Requirements during the COVID-19 Quarantine
  • 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