To ensure a seamless transition for your business, it’s crucial to have the right strategies in place. Here’s a breakdown of key considerations tailored to your business succession planning:

1. Foundational Documents: Start with the essentials. Ensure you have a well-crafted succession plan in place, which may include a business will, a power of attorney, and clear guidelines for business continuity.
2. Customized Approach: Assess your business’s unique circumstances and your current stage of succession planning. Are you in the early planning stages, or is the transition imminent? Tailor your strategy to fit your specific needs.
3. Succession for Family Businesses: If your business is family-owned, consider developing a clear plan for the next generation. Address issues such as leadership succession, financial security, and the transfer of responsibilities.
4. Integration of Assets: If you’re in the midst of your business journey, ensure that your retirement plan assets, insurance policies, and succession plan are seamlessly integrated to achieve your desired outcomes.
5. Smooth Transition: As retirement approaches, explore options like revocable living trusts, payable-on-death accounts, and transfer-on-death deeds to facilitate a smooth transition, avoid probate, and safeguard the future of your business.
6. Charitable Intentions: If you have philanthropic goals, incorporate them into your business succession planning. Develop strategies that align with your values and allow you to leave a lasting legacy.
7. Estate Tax Evaluation: For businesses in Minnesota and beyond, it’s essential to conduct an estate tax evaluation. Even smaller estates can be affected by estate taxes, so understanding your tax obligations is crucial.

By addressing these essential strategies, you can ensure a successful business succession plan that protects your legacy and sets the stage for a seamless transition.

In addition to covering the basics, make sure your plan addresses the future stability, management, and income of the business. Do you have a buy-sell agreement that describes what happens to ownership in the business after you pass away? Who will succeed you as the manager, CEO or President? If something happens to you, will your business have liquidity to continue operating? Plan for how the interests and shares of family members who work in the business and those who don’t will be balanced and distributed. 

Plan for it. It is far better to have a succession plan in place, even if it may need changing from time to time, than to just give all your children an equal share and “hope for the best”. Family disputes are expensive, both financially and emotionally. Planning, and communicating about the plan, are themselves gifts to your children.

When you plan, be objective about the true skills and interests of your children in running the business. Can they fulfill the primary executive leadership roles or not? If they can’t successfully operate the business, identify who can and be prepared to give that person the compensation and incentives to do so (which can be done without giving them the ownership of the business).

Stay focused on what is best for the long-term health and success of the business.

Prioritize equity among your children, which is not always the same as equality. Recognize and give value to those who commit their skills, sweat and energy to the business’s success.

A succession plan is a documented structure for the orderly transfer of the management and ownership of a business operation to intentionally chosen new managers and new owners in order to:

• avoid liquidation or sale of the business,
• minimize taxes and other transfer expenses, and
• carry out the owner’s non-tax family related objectives.

A succession plan is important because these goals don’t just happen. A will transfers legal title to your ownership in the business – that’s it. It doesn’t address other goals or deal in any real way with the continued health and viability of the business. Businesses don’t survive transfer to later generations unless the business’ needs are considered and planned for in an intentional way.

A succession plan starts with understanding the business, structuring its ownership and management properly, attending to its cash flow and profitability and then flexibly aligning these elements to provide for the next generation to successfully take over at the proper time and keep everything going.

The primary issue is identifying an effective and efficient exit strategy for the practice. Dentists and other medical professionals who own their own practices should be aware of the limitations of the Minnesota Professional Firms Act, as well as the limits arising out of any ethical rules which relate to their profession, and rules against the ownership of dental and medical practices by non-dentists and non-medical professionals. Due to these limits, it may be impossible for a dentist or medical professional to leave their practice to their spouse or children. Will it make the most sense to sell or will a simple wind-down work for your situation?

• Can a willing and financially able and qualified buyer be identified?
• Are the sale terms properly structured so you realize the full financial benefit?
• Is the successor qualified and dedicated so that you have confidence your patients will be well cared for?
• Does your plan cover your needs for retirement income?

Once your practice transition plan is in place does the rest of your estate plan integrate well with it? Is your spouse’s well-being and income addressed? Are the estate assets set up to pass with minimum transaction cost and in a simple manner?

First take a look at your assets, farming and non-farming:

• How many acres of land and what is the status of title? What is the approximate value if sold today? How much is tillable, how much is pasture or other use?

• What is the inventory of equipment, vehicles, grain handling and storage facilities, livestock barns and machine sheds/buildings? Who owns what? What is the current value?
• Do you have a farming partnership or a corporation? Are you in compliance with the Minnesota Corporate Farming Law?
• Is there life insurance, disability or long-term care insurance? What IRA’s or retirement accounts are in place?
• Homestead status of the land and other real estate
• Any recreational real estate, cabin, hunting acreage, time share or vacation home?
• Receivables and loans

Next consider where and to whom these separate assets will go:

• Is there a family member involved in the farm?
• Do they want to take over and are they capable of doing so successfully?
• How much help do you want to give them to make their life in farming successful?
• What is the interest level of other family members – do they want to simply get “cashed out” or would they want to hold an interest in the land?
• Do you want the land all held together or would you be ok with it being split among different family members?
• Would it help the transfer to have an entity like a family land partnership or LLC? Maybe the farming operation (crop or livestock) should be in a separate entity and rent land or facilities from a land-holding entity.
• How does your operation participate in government programs and payments? Only use structures that don’t disqualify you from participating in necessary programs.

When all the information is considered and your goals are clear in your mind, put plan documents (will, trusts, partnership or LLC agreements, lease agreements and others) in place to define and manage the transition to following generations.

Business succession planning involves creating a strategic plan for the transfer of business ownership and management upon retirement, death, or incapacitation of the owner. This process ensures the business continues to operate smoothly, minimizes tax burdens, and aligns with the owner’s personal and family goals. It includes legal, financial, and operational planning to secure the business’s future. 

Business succession planning is crucial because it ensures the continuity and stability of the business, protects the owner’s legacy, and provides clear guidelines for transferring ownership and management. Without a proper plan, businesses may face legal disputes, financial instability, and potential failure. Succession planning also helps minimize taxes and other transfer costs, safeguarding the business for future generations. 

All business owners should consider succession planning, especially those with closely held or family-owned businesses. It is particularly important for owners approaching retirement, those with complex business structures, or those who wish to pass the business to family members or sell it to external parties. Early planning helps address potential challenges and ensures a smooth transition. 

Common strategies for business succession include selling the business to a third party, transferring ownership to family members, implementing employee stock ownership plans (ESOPs), and merging with or acquiring another business. Each strategy requires careful consideration of legal, financial, and operational factors to ensure it aligns with the owner’s goals and the business’s future needs. 

Avisen Legal supports business succession planning by providing personalized legal advice, drafting essential documents, and guiding clients through the entire planning process. Our experienced attorneys work closely with business owners to understand their unique needs, create tailored succession plans, and ensure a seamless transition that protects the business and its stakeholders. 

During an initial consultation with Avisen Legal, you can expect a comprehensive discussion about your business, goals, and succession planning needs. Our attorneys will assess your current situation, provide preliminary advice, and outline potential strategies for transferring ownership and management. This meeting aims to establish a clear understanding and begin developing a customized succession plan. 

Business succession planning can significantly impact taxes, including estate taxes, capital gains taxes, and income taxes. Proper planning helps minimize these tax liabilities through strategies such as gifting, trusts, and family limited partnerships. Avisen Legal provides legal guidance on tax-efficient succession planning to protect the business’s value and reduce the tax burden on successors. 

A buy-sell agreement is a legally binding document that outlines the terms for buying and selling a business owner’s interest in the company. It is important because it provides a clear plan for handling ownership transitions due to retirement, death, or disability, ensuring the business remains stable and avoids disputes among co-owners or family members. 

Business succession planning can address family dynamics by involving all relevant family members in the planning process, clearly defining roles and responsibilities, and establishing fair and transparent guidelines for ownership and management transitions. Avisen Legal helps families navigate these complexities, ensuring the succession plan aligns with family goals and minimizes potential conflicts. 

Succession planning for family businesses involves unique challenges such as balancing the interests of family members, addressing differences in vision and capabilities, and ensuring the business’s continued success. These challenges require careful planning, clear communication, and often the involvement of neutral third-party advisors to facilitate a fair and effective transition. 

To prepare your business for a successful transition, start by developing a detailed succession plan that includes legal, financial, and operational strategies. Engage with professional advisors, such as attorneys and financial planners, to ensure all aspects are covered. Communicate the plan with key stakeholders and provide training and support to successors to ensure they are ready to take over. 

Our Business Transition Planning Guide is a great tool to help you start this process.

Implementing a business succession plan involves several steps, all outlined in our Business Transition Planning Guide: assessing the business and personal goals, identifying potential successors, drafting and executing legal documents, preparing the business for transition, and continuously reviewing and updating the plan. Avisen Legal assists clients through each step, ensuring the plan is executed smoothly and effectively. 

Avisen Legal assists with transitions involving employee buyouts by structuring and facilitating employee stock ownership plans (ESOPs), negotiating terms, and ensuring compliance with legal and regulatory requirements. Our guidance ensures a smooth transition that benefits both the business and its employees, fostering long-term stability and growth.