If you are like most entrepreneurs, you don’t expect the business you worked so hard to establish to falter when you are no longer here to run it. But sometimes, when business owners die without leaving wills or estate plans, the business must be liquidated to pay the tax liability, or the company collapses because family members have not been sufficiently prepared to take over operations. If you own a family business, you may want to consider taking steps now to help ensure this valuable asset will remain intact for your children, grandchildren, and others.
Business Succession Planning
Business owners often fail to establish formal succession plans because broaching the subject can be unpleasant. Grooming a family member for succession can be equally challenging due to conflicting personal and professional relationships. In some cases, business owners may feel pressured by long-standing sibling rivalries or family disputes.
As difficult as business succession planning may be, the consequences of not establishing a continuation strategy may be even more costly. Here are some suggestions for developing a formal succession plan strategy:
- Appoint a successor to take over as head of the company while you are still involved in the business, so that he or she can learn the business from you. Provide your successor with the mentoring and education needed to do the job, but also the opportunity to develop an individual leadership style.
- Consider your options for transferring business interests in, and control of, the company to the next generation, such as making gifts of ownership interest, selling stock to your successors, setting up a stock redemption deal, or even starting a new business for your children.
- Prepare now to minimize the tax liability of your estate upon your death. Keep in mind that future changes in the tax laws will likely be of concern to your heirs. It is essential that you seek qualified professional advice on how best to plan your estate.
- Draw up a buy-sell agreement that clarifies to whom, and at what value, your business should be sold in the event of your death. This agreement should be funded, usually with a life insurance policy, savings, or a loan.
Business continuation can be a complicated and emotional experience for business owners. A dual strategy of open and honest communication with family members and guidance from a team of estate planning professionals may help maintain the success of your business and preserve your family’s business ownership.
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