Business_Succession_Planning

							 Business Succession
       Planning


            Presented
               By
Diversified Brokerage Specialists
  Planning Your Company’s
           Future

Could your business survive
retirement, disability, or death of
owner or key employee right now?
      Planning Your Company’s
             Future (Cont.)
   Without adequate planning, your
    business may be negatively impacted
    or forced to close in relatively short
    period of time
   Why? Not because you did
    something wrong, but because you
    did nothing
Business Succession Planning
      Crucial step to help ensure
       successful transfer of your
       company or business interests
      Helps assure that funds will be
       available to help provide
       maximum financial flexibility in
       event of retirement, death,
       disability, or other separation
       from business
Key Person Coverage
   How long would it take to
    replace your key person(s) and
    how much business does your
    company stand to lose during
    transition?
   Insurance policy on key
    person’s life, where business is
    owner and beneficiary, may
    help cover cost of transition
    Buy-Sell Planning Agreement
   Written guide to help you through
    your business succession planning
   Can help mitigate conflict and
    speed up transition
What Is a Buy-Sell Agreement?
   Legally binding contract that can be
    used with all types of businesses
   Agreement must be drafted by
    attorney
   Stipulates that, at death, retirement,
    disability, or other withdrawal of
    principal, his/her share of business
    must be sold to remaining partners,
    shareholders, or business itself
          What Is a Buy-Sell
          Agreement? (Cont.)
   Remaining partners, shareholders, or
    business itself must purchase portion of
    business owned by deceased, retired,
    disabled, or withdrawing principal
   Life insurance may be purchased to help
    fund agreement at death or retirement
   Disability Insurance is critical in
    providing funding in the event of a long
    term disability.
Key Provisions of a
Buy-Sell Agreement
Buy-Sell Agreement specifies:
   Owner will not dispose of his/her
    ownership interest during owner’s
    lifetime without first offering it for
    sale to other owners
   Who will be selling and who will be
    buying
   It is mandatory for seller to sell and
    for buyer to buy
Key Provisions of a Buy-
 Sell Agreement (Cont.)
   Buy-Sell Agreement
    specifies:
      Purchase price based upon pre-
       established formula to be used at time of
       death in order to determine definitive
       price for ownership interests
      Which state laws apply
      Changes/termination of agreement
        — Process to update coverage should be
           established and valid reasons to
           terminate agreement should be stated
    Business Valuation
   Often, owner has no idea what business is
    actually worth
   Most business owners over- or undervalue
    their businesses by at least 50%
   Without proper valuation, owner’s financial
    plan may not meet owner’s needs at time
    of major event, such as sale of business,
    divorce, or death of owner
   Regular business valuation can determine
    current market value of business
   Valuation is crucial factor in determining
    individual’s net worth and life insurance
    needs
    Types of Buy-Sell Agreements—
            Cross Purchase
   Calls for each business principal to
    purchase proportionate share of
    each other’s interest in business
   Each principal purchases a life and a
    disability insurance policy on each of
    the other business principals
   Issues to consider
Cross Purchase

                 Policy Owner &
          Beneficiary on Owner B’s Life


Owner A             Premium



                    Premium

                                          Life Insurance
                                               Policy
                 Policy Owner &
          Beneficiary on Owner A’s Life
Owner B
    Types of Buy-Sell Agreements—
          Stock Redemption


   Business (instead of individual) agrees to
    purchase stock from business principal(s)
   Corporation owns life and disability
    insurance policy on principals
   Issues to consider
    Stock Redemption
 Stock Redemption                            Stock
Buy-Sell Agreement                          Redemption
                                            Buy-Sell
                                            Agreement
                            Business



                     Premium

Owner A                                                   Owner B
                                   Policy Owner &
                                Beneficiary of Policies
                                  on Owners’ Lives




                         Life Insurance
                              Policy
Types of Buy-Sell Agreements—
         Wait-and-See

   Possible solution to changing tax
    laws, business needs, as well as
    personal issues
   Actual purchaser of deceased
    principal’s ownership interest and
    respective amounts not determined
    until death of business principal
          Wait-and-See

          Buy-Sell Agreement               Buy-Sell Agreement
              1st Option                       1st Option

                                Business

                          Buy-Sell Agreement
                              2nd Option

Owner A                           Or                            Owner B




           Premium                                Premium


     Policy Owner &                                Policy Owner &
  Beneficiary on Owner                          Beneficiary on Owner
           B’s Life                                      A’s Life
                                  Life
                               Insurance
                                 Policy
          Wait-and-See:
      Protecting the Business
   Business has first option to
    purchase interest
   If business does not exercise
    option, owners have option to
    purchase interest
   If owners do not exercise option to
    purchase interest, business must
    purchase interest
             Minimize Risk
   Help protect yourself and your
    business from economic loss and
    increase likelihood of success
   Reduce risk of loss at death of key
    person or at time of business
    transfer
   Plan to retain control of business
    and assure funds will be available
    to provide financial flexibility
              Executive Benefit Checklist
   Disability Planning
   Salary continuation planning
   Equalization of disability benefits for highly compensated
   Overhead expense protection for owners of smaller
    businesses
   Disability buy and sell plans

   Life Insurance Planning
   Review of personal and business coverage
   Key Person coverage
   Buy Sell
   Deferred compensation
   Estate Planning

   Long Term Care Planning
   Using tax deductible premiums to pay for Long Term Care
    insurance