What Actually Is Meant By Business Succession Planning?
Similar to personal estate planning, business succession planning means preparing for the time when a small business owner or a closely held business owner no longer operates the business or no longer wants to operate the business.
What Is Generally Involved With Business Succession Planning?
Several things are generally involved with business succession planning. For one, business succession planning involves finding someone who will be able to take over the business, keep it going and operate it under the same values and principles as the current owner. It also involves determining a method of structure and price at which the business can be transferred. Lastly, business succession planning involves arranging for ways to fund that transfer price.
Do Most Business Owners Tend To Delay In Succession Planning?
Most business owners absolutely tend to delay in succession planning. In fact, they tend to delay even more than they do with personal estate planning. Very few businesses have a succession plan at all, and the plans that do exist usually only provide for one type of contingency that’s not universal.
What Factors Determine The Necessity To Plan For Succession Of A Business?
If the owner or owners of a business are involved in the operations of that business, then there is a need to plan for succession. If a business is owned and operated by someone else, then it’s not as big of an issue. However, if the owners are involved in the business operation, then it raises a very serious need for succession planning.
What Are The Main Reasons To Create A Business Succession Plan?
The main reason to create a business succession plan is to prepare for a situation in which one of the current owners of a business retires, becomes disabled or dies.
What Are The Essential Components Of A Successful Business Succession Plan?
There are a few essential components of a successful business succession plan. The first is the agreement between either the joint operators or owners of a business. If a business is being sold to an outside party-whether it is a partnership, corporation or LLC- then there needs to be some sort of sale agreement between the owner and the purchaser. In addition, a valuation of the business as well as some funding mechanism for the purchase price to be paid will be necessary.
Is It Ever Advisable To Sell A Business As Opposed To Handing It Down To A Successor?
Oftentimes, the owners of a business will want to sell, which in itself is a succession plan. The sale of a business is a succession from the seller to a buyer. You need the same type of planning as you do in any other succession plan; the only difference is that you have a known time for the outcome. Because it’s planned ahead of time, it’s a bit easier to do.
What Is The Best Way For Someone To Choose The Successor Of a Business?
Though it’s fairly specific to each business, you generally want to find someone who has the necessary qualities to take the place of the current owner of that business. Depending on the type of business, it may require different types of abilities, management, creativity, administration, sales or knowledge in a particular field. In general, you want someone who will be able to fill the void left by the departing owner.
What Estate Tax Considerations Should Be Addressed In Business Succession Planning?
The owners of businesses (even relatively small, closely held businesses) often have taxable estates. There are ways of transferring the business to minimize or even completely avoid the tax if the seller is willing to defer their income from the business for a while. This can be done through different kinds of entities, the most common being a charitable trust. This would allow the business owner to defer their receipt of payment from the business for a few years, and instead allow a charitable organization to receive the income. The income that the charitable organization would receive would be the income generated when the sale price is invested for a period of a few years (not the full sale price). Then, when the remainder of the sale of the business comes through, it can be exempted from inheritance tax. You always want to look at the inheritance tax implications of the sale of a business along with all of the seller’s other assets in order to determine whether or not this type of planning is necessary or advisable.
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