By John Sastry, J.D., CFP®

If you are reading this article, you likely have either built a successful business or advise those who have. Starting, nurturing, and growing a business is a time-consuming endeavor that requires focus, sacrifice, and self-discipline. However, those same skills can sometimes limit a business owner’s ability to strategically plan for the future of their business, including succession planning, mitigating risk, contingency planning, and more. This article will set forth some possible planning strategies for the busy business owner to consider. In sum, business planning requires a collaborative, team-based approach with a CPA, Attorney and Financial Professional (preferably a CFP). Assembling this team is essential for your success.

Before an outright sale of a business is contemplated, the first and most necessary step should be to get a professional valuation of the business through a qualified CPA. This valuation should become the basis upon which all business plans are developed. Without a proper valuation, planning might not be appropriate for the situation and worse, undercapitalized. Identifying a qualified valuation CPA to complete yours is something with which your financial professionals may assist.

When contemplating an outright business sale to an outside entity, the first or foundational level of planning should be contingency planning. Contingency planning addresses situations when there are other owners or employees who might purchase the business; and, how they might do so.

If there are other owners or employees who wish to purchase the business, seeking out a team including an Attorney and a financial professional to consider drafting and funding Buy-Sell Agreement(s) might be appropriate. A Buy-Sell Agreement allows for other owners or employees to purchase the business in the event of unexpected events including unexpected death and/or premature incapacity (including viral and pandemic related illnesses). The attorney would draft the Buy-Sell Agreement while a financial professional can arrange funding mechanisms for the Agreement.

The next level of contingency planning involves retaining and mitigating the risks of losing key employees who are essential to a business. To identify these individuals, a business owner might look at their employee roster and ask, “If I lost Employee X, how would that impact my business?” If there would be a material detriment to your business if that employee left, they are a key employee.

Retaining Key Employees requires a similar process to Contingency Planning insofar as it requires the same team of advisors— CPA, Attorney and financial professionals. Common retention methods for Key Employees may include specialized Deferred Compensation plans and other bonus structures, tied to legal agreements.

Retention can involve optimizing company-wide employee benefits and retirement plans. It is essential in this competitive job market that employees understand, utilize, and appreciate the benefits they are offered. Your financial professionals can assist in this regard.

Mitigating the risk of unexpectedly losing Key Employees primarily involves consultation with financial professionals, who can identify methods of mitigating and funding the business if Key Employees prematurely die or become incapacitated. Central Trust Company is able to serve as a financial professional in these situations and has experience serving business owners in a variety of situations.