For many small and mid-sized enterprises in Connecticut, especially family businesses, the future of the company often hinges on a single question: What happens when the current owner steps down?
Whether retirement is approaching or unexpected events arise, having a clear and well-funded succession plan is critical to ensuring the long-term success of a business. Without one, businesses can face disputes, tax issues, operational disruptions, and even closure. Yet despite the high stakes, many business owners put off planning—often until it’s too late.
The Risk of No Succession Plan
Failure to create a business succession plan can leave both the business and the family vulnerable. Common pitfalls include:
- Disputes among heirs or partners over who should take over
- Estate tax burdens that force the sale of the business
- Loss of business value due to uncertainty or leadership gaps
- Employee and customer turnover stemming from instability
Proactive planning helps protect the legacy you’ve built—and provides peace of mind to all stakeholders.
Financial Products That Support Succession Planning
Here are several key financial tools that can be used as part of a thoughtful succession strategy:
Buy-Sell Agreements
A Buy-Sell Agreement is a legally binding contract that outlines how ownership will transfer in the event of retirement, death, or disability of an owner. It can define who can buy shares, how they’re valued, and how the transaction will be funded.
Often, these agreements are funded through life insurance policies to ensure liquidity when it’s needed most.
Life Insurance
Life insurance can be used in several ways in a succession plan:
- To fund a Buy-Sell Agreement
- To provide cash to the business or heirs
- To equalize inheritances among children (some may want to continue the business, others may not)
Choosing the right type of life insurance—term or permanent—depends on your goals and timeline.
Trusts
For family businesses, placing business interests into a trust can provide continuity and tax advantages. Trusts can:
- Prevent probate
- Minimize estate taxes
- Help manage the business for beneficiaries who may not be ready to lead
Working with an experienced estate attorney is key to establishing a trust structure that reflects your family’s values and vision.
Installment Sales
An installment sale allows the current owner to sell the business to a successor over time, spreading out the tax burden and easing the financial transition. This approach can also provide a steady stream of income to the seller in retirement.
Planning Tips for Business Owners
As you begin or revisit your business succession plan, consider the following steps:
- Start early. The earlier you plan, the more options you’ll have.
- Identify your successor. Whether it’s a family member, key employee, or outside buyer, clarity is crucial.
- Establish a transition timeline. Plan for training, mentorship, and leadership development.
- Engage a team of advisors. Include your banker, accountant, attorney, and financial planner.
- Review regularly. Life changes, and so should your plan.
How Union Savings Bank Can Help
Union Savings Bank’s Business Banking Team partners with local business owners to ensure they have the tools and support they need to plan for the future. Whether you’re just starting to think about succession or ready to finalize the details, we’re here to help you build a roadmap that protects your business and your legacy.
Let’s start the conversation—because the future of your business deserves thoughtful planning. Learn more.
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