More than 90% of business in the United States are family owned, but less than a third will survive in to the following generation. With the prevalence of small and medium sized business, the intricacies of business succession planning must be considered as a part of your retirement plan. Preoccupied with 401Ks and SEP-IRAs the idea of business succession after retirement is often looked over- but it is an egregious mistake to overlook the transfer of your business if you are seeking to retire in the near future. Ideally after your business has surpassed the start up phase, a business succession plan should be put in to place. Failing to implement a business succession plan could mean the loss of your business after your passing or following your retirement.
A solid business succession plan helps to:
- Stabilize the business during and after its transfer
- Ensure the business transfers in accordance to the owner’s wishes
- Minimize taxes and court fees
- Reduces the chance of family disputes and protects the assets of the business
There are several options in business succession. You may choose to transfer the business to your family, beneficiaries, other partners in your business or decide in the outright sale and liquidation of the business altogether. For each option there are tax advantageous ways to transfer the property to maximize its value and minimize federal or state-level taxes. One option in business succession is a buy-sell agreement, in which one partner buys the leaving partner’s share. Also known as a buyout agreement this document will determine who can buy your share of the company, the monetary value your stake in the company is worth and what event (death, retirement, mental incapacity etc) will trigger the buyout. The business assets or stock can also be transferred, tax-free gradually through the act of “gifting” to heirs or beneficiaries at a maximum value of $14,000 anually. Depending on your personal goals and assets an experienced wealth protection attorney can create a customized exit strategy for you that honors your priorities while minimizing the tax burden.
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Then there are the intangible benefits- ones that may not be apparent until much later. These include boosted employee moral and confidence that their jobs will be secure even after your departure from the business, or the peace of mind you will receive knowing that the legacy you leave behind reflects your values and vision.
Last tips for a successful business plan
- Be honest and acknowledge the merits or shortcomings of any possible successors, choosing the right person who is best fit for the job will allow the business to continue to thrive
- Introduce your team to long time clients to ensure them that the business will continue in the same way after you leave
- Its never too early to establish your business succession plan, but its recommended to finalize your business exit strategy within at least 5 years of your expected date of retirement.