Business Succession Planning
Business Succession Planning refers to the use of estate planning strategies to implement a plan for continuity of a business in the event of retirement, illness or death of an owner or partner. Succession planning is vital for all business owners, but especially in the case of family business owners. Estimates show that 80 to 90 percent of U.S. businesses are family owned; however, less than one third of family owned businesses succeed into the next generation and around 10 percent into the third generation.
Few events in the life of a business that are as important as replacing an owner. A change in ownership is not only stressful on the succeeding owner, but also the employees, customers, suppliers, and other stakeholders in the business. Without a firm succession plan in place, the risk is high that the business will fail due to taxes, due to inadequate liquidity during the transition, due to a lack of a formal arrangement to transfer business ownership or appoint a new manager, because family members can not agree on succession plan, or because those who stand to inherit the business are ill-equipped or do not have a desire to own or manage the business.
In considering a succession plan, plan early and plan based on your business needs. Revisiting the plan periodically to reassess current business needs is also important.
Here are some steps for creating a succession plan:
- Choose a successor
- Develop a transition strategy
- Set a timetable
- Plan for retirement
- Execute the succession plan
There are several options or vehicles which can be utilized in succession planning. Some of these options include but are not limited to:
- Selling the business interest to outside third parties
- Selling the business interest to key employees
- Gifting the business interest to a family member at life or at death
- Establishing Business Trusts
- Executing Stock Pledge Agreements
- Establishing Deferred Compensation Agreements
- Executing Buy-Sell Agreements
- Establishing Employee Stock Ownership Plans
- Establishing Family Limited Partnerships
In summary, Business Succession Planning is a complex task with many variables and options.
The Zysman Law Firm, P.C. has the experience and expertise to assist you in creating a plan that will work for you, your business, and your family.