The importance of the family business in the U.S. can’t be overstated. Neither can the problems that occur as a direct result of a failure to plan for succession. Owners of a family business need to take the time to consider business succession planning. Business succession planning is the development of a plan for determining when an owner will retire, what position in the company they will hold when they retire, who the eventual owners of the company will be and under what rules the new owners will operate, instructs a recent article, “Succession planning for family businesses” from The Times Reporter. An estate planning attorney plays a pivotal role in creating the plan, as the sale of the business will be a major factor in the family’s wealth and legacy.
- Start by determining who will buy the business. Will it be a long-standing employee, partners, or family members?
- Next, develop an advisory team of internal employees, your estate planning attorney, CPA, financial advisor and insurance agent.
- Have a financial evaluation of the business prepared by a qualified and accredited valuation professional.
- Consider taxes (income, estate and gift taxes) and income requirements to sustain the owner’s current lifestyle, if the business is being sold outright.
- Review estate planning strategies to reduce income and estate tax liabilities.
- Examine the financial impact of the sale on the family member, if a non-family member buys the business.
- Develop the structure of the sale.
- Create a timeline for your business succession plan.
- Get started on all of the legal and financial documents.
- Meet with the family and/or the new owner on a regular basis to ensure a smooth transition.
Selling a business to the next generation or a new owner is an emotional decision, which is at the heart of most business owner’s utter failure to create a business succession plan. The sale forces them to confront the end of their role in the business, which they likely consider their life’s work. It also requires making decisions that involve family members that may be painful to confront.
The alternative is far worse for all concerned. If there is no plan, chances are the business will not survive. Without leadership and a clear path to the future, the owner may witness the destruction of their life’s work and a squandered legacy.
Take the time to consider business succession planning. Speak with your estate planning attorney and your accountant, who will have had experience helping business owners create and execute a succession plan. Talking about such a plan with family members can often create an emotional response. Working with professionals who benefit from a lack of emotional connection to the business will help the process be less about feelings and more about business. If you would like to learn more about estate planning for business owners, please visit our previous posts.
Reference: The Times Reporter (March 7, 2021) “Succession planning for family businesses”