Guidelines for a Successful Business Succession

By: Carlos Colón Albiñana, Private Banker at Popular One

You’ve probably thought about when and how to plan your business succession. Here are some fundamental strategies to ensure your company runs smoothly, even when faced with unexpected events.

Know your team

1. Employees:

1. Identify key employees and explore innovative methods to encourage retention, such as providing performance bonuses or involving them in profit-sharing programs. This will be crucial for maintaining business continuity.

2. Owners:

1. If multiple owners are involved, it’s essential to consider each owner’s life stage and the potential risks they may encounter—such as divorce, disability, or death—because these could impact the business’s operation.
2. Create clear contracts between owners to address situations such as retirement, disability, bankruptcy, marriage, and divorce.
3. Prepare for potential shifts in opinion among owners, which could affect decision-making and the desire to enter a joint business relationship.

Know your business’s worth

It is advisable to hire an experienced professional to conduct a formal valuation of your business. They can offer valuable insights for your decision-making and business operations. Value is not just a financial figure representing tangible assets; it also includes intangible factors that can influence its worth, such as brand recognition and market position.

Map your path to your financial goals

Clearly define your goals and set dates to meet the business’s objectives.

Use your credit or reserve wisely

A common question is whether to use your credit or your reserves to purchase inventory or make structural improvements. Consider what is best for your business to maintain a healthy cash flow.

Know the economic and/or tax benefits

Meet with your tax advisor to identify which state, municipal, or private entity incentives can help grow your business.

Regarding the state government, Act 60 of 2019 (Puerto Rico Incentives Code) was enacted to consolidate all decrees, incentives, subsidies, and benefits aimed at promoting economic development and capital investment.

These are Puerto Rico’s six most popular industries with incentives:

• Goods and services export industry: They include technology, information systems, human resources, consulting, and advertising.
• Film industry.
• Manufacturing: This involves creating products and goods and providing benefits for recycling companies and the pharmaceutical industry.
• Financial industry: Access to private equity funds for insurance companies¹ and international financial institutions.
• Young entrepreneurs: This category is for individuals between the ages of 16 and 35 who are residents of Puerto Rico and interested in starting and operating a new business.
• Healthcare professionals: A preferential tax rate of 4% for the medical profession to minimize talent drain.

Prepare for the unexpected

Understanding risks can help you anticipate emergencies and their potential impact on your business. Together with your insurance agent, you should regularly review the coverage and limits necessary for you and/or your business. Some insurance products to consider include life insurance, disability insurance, long-term care insurance, property and casualty insurance, and third-party liability insurance.

You could also incorporate any of the topics mentioned above into a comprehensive and structured financial plan, which should contain recommendations in areas such as:

• Budget and current financial situation
• Investments²
• Dependents’ education
• Risk management
• Retirement
• Income taxes
• Estate planning
• Business succession

At Popular One, our team of professionals is ready to assist you in your business succession process and manage both your personal and business-related finances, investments, and risks. Contact your private banker at 787-281-7272 or write to popularone@popular.com.