Business Succession Planning

One of the chief concerns facing owners of family or closely held businesses is how to effectuate an orderly and affordable transfer of the business to the next generation or a key employee. For business owners that are at or near retirement, the issue of succession cannot be ignored.  Proper business succession planning requires sound preparation and given adequate time and proper planning, can be accomplished easily and often profitably. But as most business owners know, seldom is there enough time available to accomplish day-to-day tasks, much less to plan for something unlikely to happen for years.

But how and when to address this objective are questions that need answering, before problems arise. Failure to plan for orderly business succession can result in both monetary losses, and even loss of the business itself. Estate taxes alone can claim 18 percent to 55 percent of a taxable estate, frequently resulting in businesses having to liquidate or take on tremendous amounts of debt just to stay afloat following an owner's death. For business owners who have done all that they could over the years to avoid or pay off a debt situation, the prospect of going back into debt to pay taxes is unpleasant.

Creating and implementing a sound succession plan will provide several benefits to owners and partners:

• It can ensure an agreeable price for a partner's share of the business and can eliminate the need for valuation upon death if the parties can agree to a price beforehand.
• Property planning can effectively prevent the possibility of an external takeover due to cash flow problems or the need to sell business or other assets to cover the cost of the deceased's interest.
• A succession plan can greatly aid in allowing for timely settlement of the deceased's estate.

There are many estate planning tools business owners can use to transfer their business. Selecting the right one will depend on whether business owners plan to retire from the business or keep it until they die.