Getting Started on your Business Succession Plan
One of the most difficult aspects of succession planning is simply getting started. With the multitude of tasks required just to keep a business in operation, planning for the future often gets pushed to the back of the to-do list.While beginning this process can seem daunting, there are many benefits of developing and maintaining a business succession plan. Just to name a few, the company owner can establish parameters whereby they maintain control of the organization, successors can be groomed to lead for a longer period of time, and substantial tax savings can be realized. Below are a few points to consider as you begin the process of business succession planning.
Talking with Potential Successors
One of the first things to consider is seemingly the most obvious, but can be easily overlooked. Who are your potential successors when it comes to running your company? Are your children interested in the business? Is a current employee interested and/or capable in running the company? Simply engaging in a 10 minute conversation with these individuals can give you a more clear and realistic idea of the desires and dreams of any potential successors.
Many small business owners often equate business succession planning with giving up control of the company. However, it is possible to develop a succession plan that transfers ownership without losing control or income. There are many ways to gift or sell ownership shares of the company without relinquishing control. Ownership shares may be gifted throughout a period of years, or a stock purchase plan can be developed whereby a successor gradually increases their ownership share in the company. The earlier a transition plan is established, the more options the business owner has available to them.
For many business owners, their greatest asset is their business. Comprehensive estate planning can thus be extremely valuable for business owners as they look to work less, sell the business, or fully retire. If a business is going to be left to the children of the owner, gifting ownership shares over an extended period of time can be a tax-efficient method of transferring ownership. Strategies that make effective use of federal gift and estate tax exclusions and exemptions can result in substantial tax savings.Business succession planning shouldn’t be looked at as a burdensome task to be grudgingly completed, but rather, an opportunity for a business owner to capture, maintain, and retain the value of the business. By developing a plan, a business owner can establish long-term goals and objectives that fulfill the needs of both the business and the personal needs of the owner. Every business owner is fully aware of the work required to start and run a successful business, and they’re encouraged to view business succession planning as an opportunity to continue to manage their business into the future.
Matt Jensen is an attorney at Fafinski Mark & Johnson who practices in the General Corporate & Business and Trusts & Estates groups. He can be reached at firstname.lastname@example.org or 952.995.9500.