A business succession plan explains what will happen to your company when you retire, leave suddenly, become incapacitated, or die. This article’s comprehensive business succession planning checklist can help you decide who will own the business, who will manage it, how ownership will transfer, how the parties will determine and pay the purchase price, and who can act during an emergency. It also coordinates the legal documents that carry out those decisions. Making them before a transition protects your company’s operations, value, employees, and relationships from uncertainty and conflict.
Since 2008, BrewerLong has helped business owners throughout Central Florida plan for every stage of the business lifecycle, including business formation, growth, ownership transitions, and succession planning. We take the time to understand your company, ownership structure, family circumstances, and long-term goals. Then, we explain your options in plain language and coordinate the legal documents needed to protect your business and your family.
What Should a Florida Business Succession Plan Accomplish?
Your plan starts with your goals. Effective Florida business succession planning turns your goals into a process that your co-owners, managers, family members, and advisors can follow when a triggering event occurs.
A comprehensive business succession plan in Florida should provide clear instructions for both expected and unexpected changes in ownership or leadership. In your plan, you address temporary events, such as a period of incapacity, as well as permanent transitions, such as retirement or death.
Business Succession Planning Checklist
When succession planning for business owners in Florida, you make a series of connected decisions. Each decision affects the others and eventually creates a cohesive guide for what your successors should do during significant ownership or management transitions. A Florida business attorney can help you coordinate each aspect of your succession plan, including ensuring your succession and estate plans align.
1. Identify the Events Your Plan Must Address
Begin by identifying the events that could change your ability or desire to own or operate the company. Your plan can establish different procedures for an owner’s:
- Retirement or voluntary departure,
- Temporary or permanent incapacity,
- Death,
- Divorce,
- Bankruptcy or creditor problem, or
- Termination.
Your plan also typically addresses potential events like:
- Disputes or deadlock between owners,
- An owner’s decision to sell their ownership interest, and
- Offers to buy the business.
Defining these events precisely helps everyone understand when each provision applies. For example, your plan may allow a manager to assume temporary authority during your incapacity but require the company or other owners to purchase your interest after your death.
2. Decide Who Will Own the Business
Next, identify the people or entities that you want to receive or purchase your ownership interest. You might choose a co-owner, a family member, a key employee, a group of employees, or an outside buyer. Consider whether each proposed successor:
- Wants to own the company,
- Understands the responsibilities associated with ownership,
- Can afford to purchase your interest,
- Has a productive relationship with the other owners, and
- Shares your plans for the company’s future.
After you select your successor, you typically also name an alternative in case your preferred successor dies, declines the opportunity, or cannot finance the purchase.
3. Allocate Management Authority
Next, determine who should make business decisions when you no longer manage the company. Decide:
- Which duties the successor will perform,
- When the successor’s authority will begin,
- Which decisions require approval from the owners,
- Whether you will transfer authority gradually, and
- Who will serve if the first choice is unavailable.
A successor manager needs the experience, judgment, availability, and relationships necessary to keep the business operating. If no individual successor has all those qualifications, you might divide responsibilities among multiple managers or recruit an outside executive.
4. Establish Emergency Authority
An accident or sudden illness can leave two types of authority unassigned: the authority to manage the company and the authority to exercise your personal rights as an owner. Your emergency plan should address the possibility of your sudden unavailability and identify who can:
- Approve payroll,
- Access essential records,
- Communicate with employees and customers,
- Pay expenses,
- Work with lenders, and
- Respond to urgent operational problems.
Your authority to manage the company comes from your position as a manager, officer, or director. As part of your succession plan, you may amend your company’s operating agreement, bylaws, or resolutions to establish who receives what authority if you become incapacitated.
You can also create a durable power of attorney that authorizes an agent to act for you personally even after you become incapacitated. Depending on the authority you grant and the company’s governing documents, your agent may exercise certain rights you hold as an owner, such as voting your ownership interest, reviewing company records, or completing an authorized ownership transaction.
5. Determine a Valuation Method
Next, establish a process that you will use to determine the value of the business and business interests. Through that process, you determine a fair purchase price during transactions.
You may decide to use, for example:
- An independent appraisal,
- A contractual formula, or
- An agreed value that the owners update periodically.
The method you select depends on the company’s assets, revenue, debts, industry, growth, and reliance on particular owners.
6. Select a Transfer Method and Payment Terms
Once you know the intended successor and value, decide how the ownership interest will transfer. The company might redeem your interest, another owner might purchase it, or you might sell or give the interest to a family member. You could also arrange a gradual sale to employees or prepare for a third-party acquisition.
The transfer terms should address the purchase price, down payment, installment schedule, interest, collateral, and consequences of missed payments. They should also determine whether you will continue receiving compensation, consulting fees, or benefits during a planned transition.
7. Create Transfer Restrictions and Buyout Procedures
Your succession plan should also address transfer restrictions and buyout procedures. Transfer restrictions allow owners to control who may obtain an interest in the company. Buyout provisions establish when the company or remaining owners may or must purchase an interest. Together, they can keep an unwanted third party from acquiring ownership and provide an exit process when an owner leaves.
A buy-sell agreement should identify:
- The events that permit or require a purchase,
- Whether the company or the remaining owners have the first purchase right,
- How the parties will calculate the purchase price,
- How and when the buyer will pay,
- What happens to the departing owner’s voting and management rights,
- Whether the departing owner must assist with the transition, and
- How the parties will resolve a valuation or payment dispute.
Your attorney can place these provisions in your business’s governing documents, such as an operating agreement, shareholder agreement, partnership agreement, or separate buy-sell agreement.
8. Address Funding for the Ownership Transition
A required buyout can strain the company if the buyer lacks sufficient funds. Your plan should identify how the company or its successor will meet its payment obligations while maintaining sufficient cash to continue operations.
Potential funding sources include:
- Company or buyer cash reserves,
- Installment payments from future earnings,
- Business or personal loans,
- Life insurance proceeds, and
- Disability buyout insurance.
Life insurance may fund a purchase after an owner’s death, while disability buyout insurance may provide funds after a qualifying disability. The appropriate policy owner and beneficiary depend on whether the company or another owner must purchase the interest.
9. Coordinate Your Business, Estate, and Tax Planning
Once you have a smooth transition sequence, work with your attorney to coordinate other aspects of your personal and financial affairs with your succession plan. We can review all documents that may affect the succession, including:
- Articles of organization or incorporation;
- Operating agreements, bylaws, or partnership agreements;
- Shareholder and buy-sell agreements;
- Employment and deferred compensation agreements;
- Wills, trusts, and powers of attorney;
- Insurance policies and beneficiary designations; and
- Loans, leases, licenses, and other significant contracts.
Your attorney works with you to understand what these documents say, how they interact, and coordinates a plan centered around your business and family goals.
10. Implement and Regularly Review the Plan
Review your plan periodically and whenever a significant change occurs, such as:
- A change in ownership, management, or the intended successor;
- A marriage, divorce, birth, death, or disability;
- Significant growth or decline in the company’s value;
- The acquisition or sale of important assets;
- A new loan, lease, investor, or ownership agreement; and
- A change in business or tax law.
During a review, your attorney can compare your current operations with the assumptions underlying the plan. We can work with you to update any outdated terms to ensure your plan works as you intend.
Create a Coordinated Succession Plan with BrewerLong
You have invested time, money, and effort in building your business. A coordinated succession plan can preserve that work by giving your successors clear instructions for the future. BrewerLong can help you build, update, and maintain that plan. We can help you make the necessary ownership and leadership decisions, coordinate your governing and estate planning documents, establish emergency authority, and work with your other advisors to prepare for a funded transition.
Contact BrewerLong to begin creating or updating your business succession plan.
Legal References Used to Inform This Page
To ensure the accuracy and clarity of this page, we referenced official legal resources during the content development process: