What Role Does Your Bank Play in Business Succession Planning?
If you own and operate a business, that adds a layer of complexity to mapping out your future. After all, a business is often the owner's largest asset, so designing a business succession plan is crucial. In this video, SouthState Wealth's Kathryn Diminich outlines some of the considerations you should weigh as you select a wealth advisor to help with succession planning.
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My name is Kathryn Diminich, and I am a financial planner with SouthState Private Wealth. I work with clients every day to create a plan to preserve and protect their assets and help them meet their financial goals. Many of my clients have sold their businesses or have already retired, but for my clients that still own and operate their business, that, of course, adds a layer of complexity to mapping out the future.
Their business is often their largest asset and determining the best way to incorporate it into their long-term financial plan can be a multi-year process. This is commonly referred to as business succession planning.
When hearing the phrase “business succession planning” many people immediately think of signing legal documents with their attorney or planning for income and estate taxes with their CPA. The reality is that a lot of work is done in advance of those steps to create business continuity after the owner’s exit.
One such area that doesn’t get enough attention is the impact of the owner’s exit on the company’s banking relationships.
If you have decided to make a “clean break” and sell your business, this may be less of a concern.
However, if the success of the business after you exit is important to your financial future, making sure the new owners can maintain healthy banking relationships is a critical step that should not be overlooked.
Key questions to ask are:
- Who is authorized to sign loan agreements or handle routine banking transactions for your business if you were incapacitated or upon your death? Is that person the best choice when considering business continuity?
- What do your current loan documents require in the event of a potential loss of your personal guarantee upon your death or a change in ownership?
- Does the potential buyer or recipient of your business have their own balance sheet that would satisfy a personal guarantee requirement of your bank?
- Would a change in the legal structure of your business, via irrevocable trusts, LLCs, or other entities, hinder any future borrowing by the business?
As the saying goes, even the best-laid plans can have unintended consequences. It is important to understand the practical implications of any proposed transfer of ownership.
Open communication with your team of advisors, including your banker, can add valuable insight when crafting your business succession plan. Your team at SouthState Bank looks forward to helping you.
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