Comprehensive Financial Solutions, Inc.

440-343-4223

Estate Read Time: 3 min

Succeeding at Business Succession

According to the Conway Center for Family Business, family businesses account for 64% of the U.S. Gross Domestic Product (GDP), yet 57% of family businesses have no formal succession plan.1 While the number may shock you, it is not surprising that many small business owners are consumed by the myriad responsibilities of running their businesses.

Nevertheless, owners ignore succession preparations at their peril and possibly at the peril of their heirs.

There are a number of reasons for business owners to consider a business succession structure sooner rather than later. Let's take a look at two of them.

The first reason is taxes. Upon the owner’s death, estate taxes may be due, and a proactive strategy may help to better manage them.² Failure to properly prepare can also lead to a loss of control over the final disposition of the company.

Second, the absence of a succession structure may result in a decline in the value of the business in the event of the owner’s death or an unexpected disability.

The process of business succession is comprised of three basic steps:

  1. Identify your goals: When you know your objectives, it becomes easier to develop a plan to pursue them. For instance, do you want future income from the business for you and your spouse? What level of involvement do you want in the business? Do you want to create a legacy for your family or a charity? What are the values that you want to ensure, perhaps as they relate to your employees or community?
  2. Determine steps to pursue your objectives: There are a number of tools to help you follow the goals you’ve identified. They may include buy/sell agreements, gifting shares, establishing a variety of trusts, or even creating an employee stock ownership plan if your desire is that employees have an ownership stake in the future.
  3. Implement the strategy: The execution step converts ideas into action. Once it's implemented, you should revisit the strategy regularly to make sure it remains relevant in the face of changing circumstances, such as divorce, changes in business profitability, or the death of a stakeholder.

Keep in mind that a fundamental prerequisite to business succession is valuing your business.

As you might imagine, business succession is a complicated exercise that involves a complex set of tax rules and regulations. Before moving forward with a succession, consider working with legal and tax professionals who are familiar with the process.

1. Conway Center for Family Business, 2019
2. Typically, estate taxes are due nine months after the date of death. And estate taxes are paid in cash. In addition to estate taxes, there may be a variety of other costs, including probate, final expenses, and administration fees.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

A Cheat Sheet for Sending Your Kid to College

A Cheat Sheet for Sending Your Kid to College

Dropping off your son or daughter is loaded with emotions; here are a few tips for a smoother experience.

The Richest Man in Babylon

The Richest Man in Babylon

In good times and bad, consistently saving a percentage of your income is a sound financial practice.

Tax-Advantaged Retirement Planning

Tax-Advantaged Retirement Planning

Reduce your tax liability in retirement.

 

Have A Question About This Topic?







Thank you! Oops!

Recognizing the Challenges of Custodial Care

The goal for most, when planning for retirement, is to ensure financial independence and never run out of money.

Four Really Good Reasons to Invest

There are four very good reasons to start investing. Do you know what they are?

Five Most Overlooked Tax Deductions

Five overlooked tax deductions to help manage your tax bill.

View all articles

How Compound Interest Works

Use this calculator to better see the potential impact of compound interest on an asset.

Impact of Taxes and Inflation

Estimate the potential impact taxes and inflation can have on the purchasing power of an investment.

What Is My Life Expectancy?

Estimate how many years you may need retirement assets or how long to provide income to a surviving spouse or children.

View all calculators

Long-Term-Care Protection Strategies

The chances of needing long-term care, its cost, and strategies for covering that cost.

Protecting Those Who Matter Most

The importance of life insurance, how it works, and how much coverage you need.

Investment Strategies for Retirement

Investment tools and strategies that can enable you to pursue your retirement goals.

View all presentations

Charitable Giving: Smart from the Heart

Do you have causes that you want to support with donations?

What to Do When You Lose Your Wallet

Ever lost your wallet? Frustrating. Here’s what you can do to keep yourself safe.

Investments

You’ve made investments your whole life. Work with us to help make the most of them.

View all videos