Jeanne Moir, International Planning Alliance
While it may not be at the top of his or her “To Do” list, every small business owner should have a well thought out succession plan in place. Having a succession plan can reduce or eliminate taxes, reduce business risk, keep control of the process in the hands of the owner and insure the business maintains its value. If implemented early rather than late in the life of a small business, the number of options is greater and the costs are lower.
The successor family member needs to know the business, experience the business and most importantly, WANT the business. Just passing it on to family members when they have no experience or interest in the business is recipe for disaster and the #1 reason that 2/3 of all family transactions end in failure.
Leaving the business equally to your heirs may not be the best solution. Take the example where there are three children, one of whom has been working in the business for 20 years, while the other 2 have other interests or jobs. Splitting the business equally may well create conflicts, infighting and hinder the operations of the business, therefore destroying value. There are many other ways to create fairness in your estate than to try and split the business equally.
Sooner Rather Than Later
Don’t wait till you are ready to retire to start succession planning. Once your business is established, growing and profitable it is time to start. The longer you wait the greater the risks of untimely death or disability leading to business failure. The control of the process is then put in the hands of the government and or attorneys. The vehicles you employ such as insurance, trusts or annuities will be more affordable the earlier you implement your plan.
The first thing to do is to establish goals and a vision of the future of the business once you have exited the day-to-day operations. Be sure that you share these goals with your successor(s) and they understand them and are in agreement. Create a timeline for your exit, identify key management positions, establish governance guidelines and have financing mechanisms in place. Make certain the plan is documented, legally sound and tax efficient and be sure to revisit your plan periodically as your business changes and matures.
There are many ways to implement your succession plan depending on your goals.
Some commonly used vehicles are: Irrevocable Life Insurance Trusts, Grantor Retained Annuity Trusts, Family Limited Partnerships, Supplemental Executive Retirement Plans and the Gifting of Shares or Assets. Consult with your professional advisors to determine the best structure for you business and goals.
According to the Family Business Institute there are about 24 million family businesses in the US employing about 62% of the work force and generating 64% of US gross domestic product. That is a powerful force in our economy, however close to half have little or no succession plans in place. If you have not done so already, meet with your accountant, attorney and estate planner to put a succession plan in place.
Or call us today (732) 741-2427 or email me at email@example.com