Do you need a succession plan for your business?
According to a study of 200 privately held businesses by the Wilmington Trust, 58% of small business owners have no succession plan for when they want to transition out of their business. Business succession planning is the process of preparing to transfer control of a business to another person or business entity. The main objective of most business owners is to transfer the business to a third party in a way that minimally disrupts business operations and that maintains or even provides for enhanced valuation of the business for the owner transferring the business.
There are a few key reasons business owners should create a succession plan. The first is to provide liquidity for the owners of the business. Another important reason for exit planning is the minimization of transfer taxes either by gifting or by inheritance through a will or trust. Many business owners want to provide continuity for the business as well so that the employees that have depended upon their jobs for so many years will not be left jobless. Finally, doing proper succession planning can help a business owner plan fairly for his or her children and other family members down the road.
For some business owners, the business does not represent the bulk of their assets. In such cases, transferring their business to the next generation may be preferred. For most business owners, their main asset is their business and as such, making sure the value of the business is maximized and being able to liquidate and generate cash flow to fund retirement is an important reason to establish a succession plan.
There are several ways that a business owner can exit his or her business. The most obvious is to sell the business to a third party or to create an employee stock ownership plan (ESOP). Another common business exit strategy is to transfer the business by way of gift, sale or grantor retained annuity trust (GRAT) to family members that want to continue the business operations. Yet another way to exit is to simply wind down the business, sell all business assets, and close up shop.
Business owners without a succession plan could create major issues with their heirs upon their death or inability to continue running the business. Issues involving control, ownership, taxes, training concerns, and finding a viable exit strategy if there's no relative or current employee willing (and able) to take over can arise without a thorough plan can all arise if a business owner passes away without a plan.
Contact The Howe Law Firm today to discuss the future of your business and we will work to find the best way to control what happens to your business and take the proper steps to execute your plan.