Have you recently asked yourself, “Is my business prepared for its next generation?” As a business owner, you know the importance of planning ahead and tackling unexpected challenges, which is why having a viable succession plan in place is key for securing the future of your business. Establishing a succession plan is very beneficial for all business owners and can be an absolute necessity for most.
A succession plan is essentially an exit strategy to ensure a business can survive and prosper when the current owner(s) are no longer in charge – due to retirement, untimely death, or unexpected disability. Succession planning is not an all-or-nothing situation where changing ownership means giving up control and reduced income. With proper planning, it is entirely possible to create a succession plan that transfers business ownership to an eventual successor without losing control or income and retaining the opportunity to continue to build a legacy.
Below are various reasons why succession planning can play a vital role in your business:
- Financial security in retirement: Research has shown that few business owners participate in retirement plans, and many have sacrificed personal savings in order to invest in their business. As a result, many business owners have much of their wealth held in their business.
- Support for family members: In the event of an owner’s death or unexpected disability, a succession plan can help ensure family members have access to funds or liquid assets.
- Minimize taxes: Without a proper plan in place, estate taxes, income taxes and other costs can be significant, resulting in unnecessary stress on a business and an increased chance of failure.
- Take care of existing workers and community: With proper planning, a business owner will increase the probability that their business is successful in the future, employ existing workers and continue to benefit the community.
- Increase the current value of the business: A well-executed succession plan makes a business attractive to potential buyers or lenders.
By following key steps, you can position your business for continued success and growth:
- Identify your goals: Developing a plan becomes easier once you set objectives. For example, what level of involvement do you want in the business? Do you want future income from the business for you and your family?
- Outline steps to pursue your goals: There are several strategies to efficiently reach your identified goals. These may include buy/sell agreements, gifting shares, establishing a variety of trusts, or creating an employee stock ownership plan (ESOP).
- Implement the plan: As you begin to implement your plan, be sure to revisit it on a regular basis to ensure the plan remains relevant. Circumstances that can require changes to existing plans include divorce, changes in business profitability, or the death of a stakeholder.
You’ve worked hard to build a successful business, so why not make sure it continues to thrive? Taking these steps now will save money and time and will help ensure the continued success of your business. Succession planning involves a complex set of tax rules and regulations that can often be tricky to navigate. At BerganKDV, we work with business owners to assist with various tax planning and business advisory needs and would be happy to assist you where we can. Contact us today before moving forward with your planning process so that we can ensure your plan is tax compliant and identify any gaps.