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The 5 D’s of Business Succession Planning

Business succession planning is estate planning for businesses. Business owners must plan strategically for the care, protection and transfer of assets.

Business owners often are responsible for not just their livelihood but for those of their employees. In planning one should be thinking about the five D’s of succession planning. We focus on the Disability, Divorce, Departure, Dissolution and Death when creating a succession plan.

​It is vital that there be a plan for sustaining operations in case of disability. There must be a delegated authority for short-term as well as long-term management of responsibilities andone of the challenges with planning for Disability is first the recognition of a disability. There must be a clear definition of triggering events of disability as well as the definition of disability. In many cases we develop panels of trusted individuals who can identify when there is a disability. The disability should include detection of substance abuse as well as mental and emotional health issues. There should also be the consideration of when there is restored ability and the restoration of responsibilities upon the restored ability.

Divorce can have crippling effects upon a business. Whether the divorce is of the principal(s) or the partners of the principal, divorce can destroy a business. The structure of the business, the timing of business development as well as the funding of the business can be impacted by the laws of the state where the marital home is claimed. The conversation and consideration if there are two business co-owners who are married and decide not to stay married. The discussion regarding who has the benefit of the business should happen before the marriage or before the business is created. Sometimes after is a little late and there are too many emotions and hurt feelings to make a fair decision.   Divorce that touches the business is painful almost always.

Departure is the walking away from the business through either retirement, sales or distribution. When we reference departure in this setting, it is not because of death.  It is a voluntary strategic plan to move out of the business. That may or may not be an arms length transaction. It can be to pass on to family members, employees or selling to a third unrelated person. There are many possibilities when strategic planning.

Dissolution is the ending of the business.  That can be due to voluntary or involuntary reasons. If the business is a sole proprietorship the business ends when the owner passes away. There is no separation between a sole proprietorship and the business owner. The determination of how the business isdissolved can be quite sticky and disruptive. The best way to play is to plan ahead.

Death is the most obvious reason to plan for the succession of the business. Most of believe we will leave this earth through death. We need to factor whether there will be the need for probate, if there will be the continuous operation of the business after we pass away and how the people we love will be affected. The people we love include not only the employees and the beneficiaries of our employees but also the customers we are serving.

​Looking at the five D’s of succession planning requires strategic planning. Let’s take the steps to plan not just for us but for the people we serve — friends, family, employees and customers.

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