WHY DO BUSINESS SUCCESSION PLANNING?
The purpose of this article is to motivate you to think out who will take over your company when you step down or die? Honestly analyze the question, ‘Can my family work together and really run the business after I am gone?’
Did you know that over 15 million businesses live and breathe in the United States, and nearly 90% of these businesses are family owned or controlled? Nearly 50% of the gross national product and of total wages paid in the United States is produced by family owned businesses, according to the U.S. Small Business Administration.
Only about one 1/3rd of businesses make it to the 2nd generation. Nearly 15% of businesses make it to a 3rd generation.
The overriding problem for many businesses is failing to plan for the future.
Goals in the business succession planning process often include: (1) maintaining family harmony and values, (2) planning to assure continued viability of both business and family and (3) charting strategies to minimize taxes.
I encourage you to make plans today on how to decide your succession plan—your entry and exit strategies—your involvement in your family business after your retirement or after the sale of the business. Think through why buy sell agreements should be funded through insurance to assist shareholders who become disabled, divorced, leave the business, or simply wish to be bought out. Think out whether business earnings can realistically support each family member who works for the business after your death. Decide upon governance issues, compensation and benefit policies for those who will succeed you. For example, should compensation be based on performance or family relationship and should children have voting or non-voting stock when running the business after the death of a patriarch or matriarch?
Any business succession plan must develop a sound strategy to avoid the federal estate tax and inheritance taxes at the state level. Furthermore, family members can decide if an installment payment should be utilized for up to a 14 year payout for estate taxes owing to the federal government. By working in a collective effort with multiple advisors, you decide if your business can be structured to obtain valuation discounts, decide if dividends could be paid to a spouse if the company has never paid a dividend in the past, and at the state level, decide if disclaimers can be utilized within nine months of death to pass down inheritance with the use tax exemptions for children and grandchildren.
Family business succession planning is a collective effort which requires multiple advisors to work together, i.e. your attorney, financial planner, accountant, lending officer and investment advisor. Do not wait too long. Take time today to schedule an appointment and be proactive in passing down your wealth to the next generation.
Mark Hurt is an attorney who practices estate planning, estate and trust administration, and business law. Mark has been a member of the Fishers Chamber of Commerce since 2005. Mark can be reached at (317) 770-0547 and www.markhurtlaw.com.