Put Succession Planning at the Top of Your To-Do List

“So what happens when you die?” That’s a question that catches a lot of clients off-guard, but it’s one I’ve found to be pretty useful.  Over the years I’ve discovered that, despite their best efforts to manage their companies, many small business owners have only a very slight idea of what will happen to their companies after they are gone.  Perhaps they have been so busy with building wealth that it’s slipped their mind, or they’ve thought themselves too young to need to worry about it (“I don’t plan on retiring now, so why bother?”).  Perhaps they haven’t thought about a worst-case scenario -- their sudden death or inability to work. Whatever the case, it’s unfortunate, because building a succession plan is the most vital business protecting measure entrepreneurs can do.  It’s time to take it seriously.

Formal succession planning not only protects your operations from risk, it also untangles a potential legal and financial mess that would otherwise be left to your loved ones. That being said, prepare for a process, not an event. Ensuring the smooth succession of your business requires making a series of strategic decisions and proactively managing your records.  In other words, don’t think you can just take an afternoon and hash everything out.  

Here are a few things to consider:

• Succession planning should begin, at a minimum, five years before a planned succession event. However, an emergency plan should be made immediately to protect your business and family should you unexpectedly become unable to work.
• Begin with the end in mind.   Determine your vision and set concrete goals to achieve it.
• Estate and succession planning go hand-in-hand.  
  • Wills are legal documents that specify what happens to your assets when you die. If you do nothing else, write a will.
  • Trusts are legal entities that own assets, are managed by one or more trustees, and have designated beneficiaries. They play a vital role in estate planning because they allow you to control and protect the assets while minimizing tax liability.
  • Life Insurance is typically used as a source of funds for buy-sell agreements and paying estate taxes.
  • Family Limited Partnerships (FLPs) allow you to receive discounts when making gifts or transferring assets, protect assets from creditors and lawsuits, shift taxable income, and remove highly appreciated assets from the estate.
  • Employment Contracts can provide lifetime income to you and/or your family upon your death, disability, or sale of the business.
  • Asset Protection Entities allow you to protect your assets from creditors and realize significant tax savings.
• The #1 goal of estate planning is to pass along as much of your money to your heirs as possible.  Be sure your estate planning firm is skilled in minimizing taxes.
• Navigating complex family dynamics is also a priority.  Your estate and succession planners must share your values.

By prioritizing succession plans now, you can rest (a little) easier knowing that your business will be in the right hands, with the right resources, once you step away.

On August 16, we are hosting a business succession planning event in our office.  During this event, a distinguished group of wealth management and investment strategists will discuss selling your business, transitioning to the next generation, buying-out, identifying financial and strategic buyers, and other related topics as requested by the audience. I’ll be moderating, and the event will also provide the opportunity for networking among guests.  The event will also give you the opportunity to participate in our school supply drive.  Be sure to join us.  

The bottom line? Don't leave things to chance. Get started today on a sensible, well documented succession plan. We’re here to help.