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Insuring Your Legacy: Three Tips to Develop a Business Succession Plan

By Alejandro Mendieta, Managing Partner Coastal Wealth, a MassMutual Firm


Many Hispanic business owners start their businesses as part of their dream to build a legacy for their families. In fact, according to the 2018 MassMutual Business Owner Perspectives Study 34% of Latinos plan to leave their business to family members. The study revealed that 69% of Latino business owners have a written succession plan and 59 % have a buy-sell agreement in case of death (and 52% in case of disability).

The death or disability of an owner is one of the greatest threats to a business. Not only it can severely impact the day-to-day operation of the company, but it can raise all sorts of business succession and estate tax problems. It’s important to think beyond today and plan for an unforeseen event that could threaten the viability of the business.


Here are three tips to help ensure a smooth transition of your business:


1. Know the value of your business

This is an important first step toward building a sound business succession plan to keep the business viable and your loved ones protected. A business valuation conducted by a credentialed valuation expert, estimates the economic value of your interest in a business. It is most often used to determine the selling price of a business, the amount needed to fund a buy-sell agreement or to assign values to individual assets held by the business.


2. Find a successor who would take over the business

Have meaningful discussions with any family members or trusted employees you intend to name as successors of your business and communicate often what they can expect. Make sure the business successors understand their role under the new ownership.


3. Make sure you have a properly funded buy-sell agreement in place

A buy-sell agreement can be designed to protect your business from the five D’s – death, disability, divorce, departure, and disqualification. For example, without a buy-sell agreement, upon the death or disability of a business owner, the business, or portions of it, may need to be sold in order to pay the surviving owners for their share of the business, estate taxes, and/or business operating expenses. If a buy-sell agreement is in place, it’s important to make sure that it’s funded in accordance with the current value of the business; otherwise it won’t accomplish what you intended. To help ensure that your buy-sell agreement continues to meet the needs of the business, it should be reviewed at least every three years.


Local firms are sales offices of Massachusetts Mutual Life Insurance Company (MassMutual), and are not subsidiaries of MassMutual or its affiliated companies. Securities and investment advisory services offered though qualified registered representatives of MML Investors Services, LLC. Member SIPC. Supervisory address: 2400 E Commercial Blvd, Suite 1100, Fort Lauderdale, FL 33308. Tel. 954-331-5100. CRN202109-253050


Neither MML Investors Services LLC nor any of its employees or agents are authorized to give legal or tax advice. Consult your own personal attorney, legal or tax counsel for advice on specific legal and tax matters. their companies.

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