Business Succession and Funding

business succession planning

What is a business succession plan?

A business succession plan is in place to protect the continuity of a business should an owner or key person leave through choice, illness, accident or death. The plan aids in successfully transferring your business to a chosen successor.

For business owners, a Business Succession Agreement funded by insurance helps protect all owners and their family. This allows for an orderly transfer of ownership.

For a successful transfer of ownership, there should be a business succession agreement and a form of funding. Ideally, these two components are structured together, which will require a lawyer, accountant and financial planner to work together.

How does it work?

The business succession agreement will need all business owners to enter into a written legal agreement. This agreement will detail the course of action if one of the owners leaves due to death, illness or injury.

This agreement provides a plan for the departing business owner to transfer their interest to the remaining key people, and for the remaining people to acquire the previous owner’s interest in the business.


As a partner who is staying in the business or a successor, there are funding options that will allow you to fairly compensate the departing owner. There are three main options when it comes to funding the capital requirement of a business succession plan--borrow money, sell assets, or a specialised insurance payout.

The two main questions to ask when it comes to business succession planning are:

  1. Would your business have the ability to cover the loss of goodwill and revenue and repay the debts of the business if an owner or partner died or left due to serious illness or injury?
  2. Would your business have the ability to pay for the departing owner’s share of the business if they were to leave due to death, serious illness or injury?

If the answer is no, you as a business partner should consider giving the financial risk to an insurance company to deal with.


Insurance is usually the most efficient way of making sure that enough funds are available if the owner is departing due to death, illness or disability. 

The two types of insurances  to look into are:

Buy and Sell Insurance

This insurance pays a lump sum should one of your business partners dies or suffers from illness or injury.

Key Person Insurance

This Insurance pays your business a sum of money to offset the approximate financial loss in the event that an owner or key person dies or suffers from illness or injury.

If you need support with succession planning for your business, please contact Wagtail Wealth today.

IMPORTANT NOTE: This information is general advice only and does not take into account your personal circumstances, goals and objectives. Therefore, you should consider its appropriateness for your circumstances before acting on this information.

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