Every business owner eventually faces an important question: “What happens to my business when I’m no longer running it?” Whether you’re planning to retire, looking to preserve your legacy, or simply preserving the status quo during your temporary absence, having a succession plan is crucial. This plan needs to work hand-in-hand with your personal estate planning to protect both your business and your family.
Why Two Types of Planning Matter
Think of succession planning like building a bridge between your business’s future and your family’s future. On one side, you need to ensure your business continues to thrive by choosing the right leaders, keeping valuable employees, and maintaining relationships with clients. On the other side, you need to protect your family’s wealth, divide assets fairly, and minimize taxes. Both sides must work together for the bridge to be strong. Business owners have personal financial goals that they want to meet for retirement purposes and often, the transfer of their business plays a large role in that plan.
Know Your Business’s Worth
Before you can plan for the future, you need to know what your business is worth today. Regular professional valuations help you understand your company’s true value, including things you might not think about – like your customer relationships and growth potential. As market conditions change, so can your business’s value, which is why updating these valuations is important.
Making the Transfer Work
There are several ways to transfer business ownership, and choosing the right one matters. Many owners use buy-sell agreements, which spell out exactly how and when ownership will change hands. Others use small transfers over several years during the life of the owner. For family businesses, Family Limited Partnerships (FLPs) can be particularly helpful. They let you gradually transfer ownership to the next generation while maintaining control and reducing taxes. It’s like teaching your children to drive – you stay in the passenger seat with access to the brake pedal until they’re ready to take the wheel alone.
Tax Smart Planning
Nobody wants to pay more taxes than necessary. Good succession planning looks at both estate taxes and business taxes. You can use various tools, like lifetime gifts and special trusts, to reduce taxes. On the business side, how you structure the company and handle compensation can make a big difference in the tax bill. Making sure that your estate planning attorney is on the same page as your CPA and is aware of your tax planning goals will streamline the planning process and better ensure the end result.
Leading the Way Forward
Choosing and preparing future leaders is critical. Whether you’re training family members or key employees, you need clear standards for who will take over and how they’ll be ready. This becomes especially tricky in family businesses, where you’re balancing business needs with family relationships.
Getting the Paperwork Right
You’ll need several legal documents to make your succession plan work. Think of these as the instruction manual for your business’s future. They include agreements about how the business operates, who owns what, and how decisions are made. These need to work alongside your personal estate planning documents like wills and trusts. Most importantly, make sure you have powers of attorney that clearly define who can make decisions on behalf of the business and who can make decisions on behalf of the person.
Family Matters
Family businesses face unique challenges. Sibling rivalries, in-laws, and varying levels of involvement can complicate things. Setting up clear rules, regular family meetings, and sometimes bringing in outside advisors can help prevent family feuds from damaging the business.
Keeping Good People Around
Your employees are valuable assets. During ownership changes, it’s important to keep key staff members on board. This might mean offering financial incentives, clear paths for advancement, or other benefits that encourage them to stay with the company through the transition.
Paying for the Plan
Having a great succession plan isn’t enough – you need to be able to fund it. This might involve life insurance, disability coverage, or special financing arrangements. Your succession planning attorney will work with your financial advisor or planner to discuss the methods that can be used to meet your business and personal goals.
Making It Happen
Remember that succession planning is a process, not a one-time event. Start with the basics: figure out what your business is worth and review your key documents. Over time, train future leaders, update your plans, and work toward your long-term goals.
Getting Expert Help
You don’t have to figure this out alone. Contact our firm at 864-699-9801 for assistance with business and estate law. We can work together with you to create and implement your plan.
Keeping Your Plan Current
Your business and family will change over time, and your succession plan should too. Regular reviews with your attorney help ensure your plan still fits your goals and circumstances. Think of it like updating your smartphone – occasional updates keep everything running smoothly.
The Bottom Line
Good succession planning protects both your business legacy and your family’s future. By thinking ahead and working with the right professionals, you can create a plan that ensures your business continues to thrive while providing for your family. The key is to start planning early and remain flexible as circumstances change.
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Lauren Ward
