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If you’ve worked hard to build your business, it’s natural to hope it continues to prosper in the future. That’s why a business succession plan is so important.

What Is a Business Succession Plan?

A business succession plan outlines who will take over when and if a business owner wants to retire or something unexpected happens to one of the owners. With a well-designed plan in place, everyone will know what happens next, which will reduce disputes and uncertainty and smooth the waters for new owners.

Charting Your Course

A good succession plan depends on these key factors.

  • Choosing who will take over.
  • Deciding how the transfer will be executed.
  • Deciding when the plan will be implemented.
  • Making sure you’re ready for retirement.
  1. Choosing who will take over. Are you planning to transfer or sell the business to a family member, partner, key employee or someone else? Your decision may hinge on whether your chosen successor has experience in the industry, has a vision for the future or is business-savvy.
  2. Deciding how the transfer will be executed.

    Transferring responsibility to an heir. One simple way to transfer the assets might be to set up a trust. An estate planning attorney can help you work out the details.

    Training. It’s important your successor is ready to take over from day one. Train them in the day-to-day workings of the business, not just the executive functions. Gradually hand over increasing responsibilities so they gain experience while you’re available to mentor and answer questions.

    Selling to a partner, key employee or other buyer. In this situation, you’ll need a business appraisal that takes into account assets and revenue streams.

    • For partners or a key employee, discuss whether and how they’ll buy out your share of the business. Will it be through a buy-sell agreement or an insurance policy? Are you willing to finance the sale and allow them to pay over time? If they’re not interested, what‘s your next step?
    • If your plan is to transfer assets to your employees, explore an employee stock ownership plan.
    • Explore whether competitors would be interested in an acquisition. Regardless of whether you plan to sell to a competitor or another outside buyer, get your business get your business sale-ready and consider obtaining the services of a business broker.

    Don’t forget to make sure your employees and management are on board so they can all work together for a smooth transition.

  3. Deciding when the plan will be implemented. Think about when you want to exit the business and how you’ll turn over the helm. Set milestones so you can accomplish your plan in manageable steps. Even if you and your co-owners expect to stay for decades, have a Plan B in case sudden illness, death or personal factors mean you have to move up the timetable.
  4. Making sure you’re ready for retirement. It’s easy to overlook your own financial future when nurturing a business. A tax-advantaged retirement plan, like a 401(k), can help you save toward a comfortable retirement. Navy Federal offers a range of business retirement and insurance services.

We’ll Help You Stay the Course

At Navy Federal Credit Union, we can help connect you to the resources you need for your business now and for the future. You can learn more tips for starting, managing and growing your business on our Business Solutions page.

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.