Follow these steps for building a succession plan for your business
Businesses that operate under one owner oftentimes thrive and are capable of achieving great profits. The trouble with these businesses, however, is that typically the owner manages the operations and is also the chief source of revenue—which is why after the owner retires or passes away, continued success can be difficult to sustain. Estate planning for a single-owned business can prevent your business from fizzling out after you are no longer the one in charge. Get started with your owner-dependent business succession play using the following steps.
Start Planning Today
When you’re the sole owner of a business, making a plan for how you want your company to operate without you is not only important, but also a common courtesy for everyone else involved. Whether you intend to sell or pass the operations on to a family member, planning these transfers can take a long time, sometimes as long as ten years. With that in mind, you should begin planning as soon as possible, especially once your family becomes dependent on the income produced from the business. Having a proper plan lets the executor of your estate know exactly how the business should be handled after your departure.
Determine Your Vehicle for Transfer
Now that you have started building your succession plan, the next step is determining which estate planning vehicle you will use to transfer your business when the time comes. A will or a trust are your two most common options for documenting your wishes and naming your successors, and you should always consult with an attorney to learn how your specific business structure could impact how business debts and assets are handled in stride with your personal debts and assets. Make sure to communicate your intentions of succession planning and gauge the interest of family members or other potential future owners.
Minimize Risk and Taxes
One of the most important pieces of preparing your business’s succession plan is minimizing the risk of liability and high tax costs for those you leave behind. Even though the primary business owner has retired or passed away, the business itself may continue to be liable for any errors and omissions, injury, or damage it causes going forward. Maintaining the proper business insurance is something you do not want to be without during the transfer period. Proper estate planning will also minimize the high cost of a “death tax” that could be implemented after your passing. The death tax can range from 35% to 50% of the company’s value, and in some scenarios, successors are forced to sell the business just to make the astronomical tax payment.
Even if you aren’t considering handing off your business after retirement or death, it’s best practice to put together a succession plan sooner rather than later. Priorities and interests change over time, and with the amount of work that goes into planning the succession of a business, give yourself plenty of time to make sure everything is done correctly. Contact Anselmo Lindberg & Associates for a complimentary consultation.