Inc magazine reported that 66% of small-business owners have no formal succession plan. While this number may shock you, it probably doesn’t surprise you either since so many small business owners are consumed by a plethora of responsibilities while running their business.
Nevertheless, owners often ignore succession planning and possibly run the risk of harming their heirs.
There a number of reasons for owners to consider a business succession plan. Here are two of them:
Estate Tax Bills
The first reason is taxes. When the owner dies, estate taxes may be due. This is where a proactive strategy may help to better manage. Failure to properly plan can lead to a loss of control over the final disposition of the business.
Secondly, the absence of a succession plan could result in a decline in the overall value of the business in the event of the owner’s unexpected disability or death.
The process of business succession planning includes three basic steps:
- Know Your Goals: When you identify your objectives, it becomes easier to make a plan to pursue them. For instance, do you want future income coming from the business for you and your family? What kind of involvement do you want in the business? Do you want to make a legacy for your family or create a charity? What are the values that you want to implement and ensure, perhaps as they relate to the employees or the community?
- Determine the Steps to Pursue Objectives: There are a number of ways to help you follow the goals identified. They may include gifting shares, buying/selling agreements, creating a variety of trusts, or even making an employee stock ownership plan, if you desire your employees to have an ownership stake of the business for the future.
- Implementing the Plan: An execution step converts ideas into reality. Once implemented, you should revisit the plan often to make sure it remains relevant in the face of changing circumstances, such as changes in business profitability, divorce, or the death of a stakeholder.
Please note that a fundamental prerequisite to business succession planning is valuing your business.
As you might think, business succession is a complicated exercise that involves a complex set of regulations and tax rules. Before moving forward with your succession plan, consider working with us or a legal professional who is familiar with the process.
Hoberman & Lesser’s NYC accountants serve a broad cross section of businesses, ranging from publicly held companies, to private sector businesses, to individual entrepreneurs throughout New York, New Jersey, and Connecticut, and across the United States. To schedule a complimentary and confidential consultation with a member of our team, please contact us.
