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Succession planning for business owners: It is never too early to be prepared

Northern Credit Union’s Sr. Vice President of Member Experience explains the importance of planning for the future of your business.

Whether you are a new business owner or have already built a thriving organization, succession planning is important for your financial health. According to Liisa Woolley, SVP, Member Experience for Northern Credit Union, a good plan is essential.

“Succession planning is important for business owners who intend to eventually exit from their businesses or retire one day,” she says. “Business owners have invested significant time, effort, and resources into building their companies. Succession planning ensures that the business can continue to operate smoothly after the owner's departure, whether due to retirement, illness, or another reason.”

Importance of a Comprehensive Succession Plan

There are a number of reasons for you to create or modify the succession plan for your business, including:

  • Wealth Preservation:
    For many business owners, their business represents a substantial portion of their wealth. A well-executed succession plan can help preserve and maximize the value of the business, allowing the owner to exit with a comfortable financial cushion.
  • Personal Retirement Planning:
    Succession planning is integral to a business owner's personal retirement and financial planning. It allows for the orderly transition of the business, enabling the owner to step away from day-to-day operations and enjoy their retirement.
  • Minimizing Tax Liabilities:
    Proper succession planning can help minimize tax liabilities for both the business owner and their heirs. Strategies such as gifting, estate planning, and structuring the transition can optimize tax efficiency.
  • Employee and Customer Relationships:
    Business owners often have strong relationships with employees, customers, and suppliers. Succession planning ensures that these relationships are maintained and that the transition is as seamless as possible.
  • Risk Mitigation:
    Sudden or unplanned exits can be disruptive and risky for a business. Succession planning helps mitigate these risks by ensuring that there is a clear plan in place for leadership transitions.
  • Personal Peace of Mind:
    Knowing that there is a plan in place for the future of the business can provide business owners with peace of mind and reduce stress.

“It's important to note that succession planning is an ongoing process that should be revisited and adjusted as you and/or your business evolves. Work with legal and financial advisors to create a comprehensive succession plan that addresses their specific goals and circumstances,” says Liisa.

Timing is Important

Business owners should start thinking about succession planning and related exit strategies well in advance of their intended exit or retirement date. The exact timing may vary depending on individual circumstances, the size and complexity of the business, and the owner's long-term goals.

It's advisable to seek guidance from professionals, such as financial advisors, attorneys, and business consultants, to create a customized succession plan that aligns with your objectives.

Where to Start

In order to ensure a bright financial future, it is important to create an individualized plan that works your own unique circumstances.

“Succession planning is a complex process. Every business and family situation is unique, so your succession plan should be tailored to your specific circumstances and objectives,” explains Liisa.

Business owners should keep several important points in mind as they navigate this crucial aspect of business and personal planning:

  • Start Early: Succession planning should begin well in advance of your intended exit date.
  • Clarify Your Goals: Define your personal and business goals for the succession.
  • Involve Key Stakeholders: Include key family members, business partners, and stakeholders in the planning process.
  • Consider Different Exit Strategies: Explore various exit options, such as selling the business, passing it to family members, transitioning to key employees, or seeking an external buyer. Each option has unique considerations.
  • Seek Professional Guidance: Consult with legal, financial, and business advisors who specialize in succession planning.
  • Plan for Contingencies: Anticipate unexpected events.
  • Document Your Plan: Clearly document your succession plan, including legal agreements, financial arrangements, and leadership transition procedures.

Regularly Review and Update: Succession plans should be dynamic that evolve with changes in your business and personal life.

Help is Available

Fortunately, assistance is available. It is recommended that you get advice from a professional who knows your situation and your business well.

“Business owners should engage with a trusted financial institution, like Northern Credit Union, and its team of professionals early in the succession planning process to access valuable services and expertise. Collaborating with financial experts can help ensure a well-structured and financially sound succession plan that aligns with the owner's goals,” says Liisa.

She continues, “Here at Northern Credit Union, our team can help with financing options, estate planning, tax planning, retirement planning, and insurance solutions.”

To learn more about estate planning, visit Northern Credit Union online or call 1-866-413-7071.