A common and often costly mistake when it comes to business succession planning is not starting the process early enough.
The pandemic has made many business owners rethink their business succession and retirement planning. Insurance News Net’s recent article entitled “Succession Planning For Business Owners: More Important Than Ever” reports that according to PwC’s 2021 US Family Business Survey, only a third of US family businesses have a robust, documented and communicated succession plan in place.
If you wait too long, you may not have the right people in place to run the business. It also restricts the tax planning options for the business and your personal estate. Either error can cause a business to fail, when it passes from one generation to the next.
An exit that is too sudden or without direction can leave a vacuum at the top and damage relationships with existing clients and customers. With clear objectives, a sense of urgency and an experienced estate planning attorney, you can help ensure that your business, and your future, are secure.
There are a number of areas of transition that should be addressed:
- Founder Transition: Determine how long you plan to stay with the business, and what your retirement plans are;
- Family Transition: If you plan to leave your business to your children, determine the way in which the roles and power relationships will change;
- Business Transition: How will the company’s operations and customer relations be maintained through other transitions;
- Management Transition: Decide who will make up the new management team, such as family, non-family, or both, and how new leadership will be evaluated. You should also map out the schedule for transferring control of day to day decisions;
- Ownership Transition: Determine how ownership is to be transferred; and
- Estate Transition: see how you will coordinate your estate plan to ensure that the other transitions above occur as planned.
Many of these transitions will be accomplished through formal documentation, such as an operating agreement, buy-sell agreements and trusts. Sit down with an attorney soon rather than later to sort this out.
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Reference: Insurance News Net (December 30, 2021) “Succession Planning For Business Owners: More Important Than Ever”