Introducing Our New Series: Succession Planning for Business Owners

According to a JP Morgan Wealth Management Report, only 35% of businesses in the US have a formal succession plan in place. What about the remaining 65%? Many business owners mistakenly assume that succession planning is a reserve best left to large corporations or a matter to be dealt with later.

Whether you run a family business or a closely held company, you should not overlook the benefits of formal business succession planning. More than half of all exits from US businesses stem from the Five Ds: death, disability, divorce, distress, or disagreement. To prevent the business you poured your blood and sweat into from crumbling after you inevitably leave, it's important to draft a comprehensive business succession plan.

Why Business Succession Planning Matters

Succession planning entails planning for another person or entity to purchase or take over business operations when you retire, become disabled, or pass away. Family business succession planning entails planning for your family members to take over business ownership after you’re no longer available to steer the ship. Keep reading to understand the importance of this savvy business strategy.

Taxes

One of the most important benefits of devising an ownership succession plan is understanding different tax liabilities and consequences of transferring ownership. As you'll find out in our upcoming articles, business owners who choose to transfer business assets to family members must be aware of gift tax limitations. At the same time, the type of business entity that defines your family business, whether a C-Corp, S-Corp, LLC, or partnership, will also determine the tax liabilities when you transfer ownership.

Risk Management

Nearly 50% of business exits in the US are involuntary, caused by the Five Ds: death, disability, divorce, distress, and disagreement. Furthermore, data shows that following the death of a business owner, sales are likely to decline by 60% on average and employment by 17%, which can significantly affect the business value. A well-organized succession plan can lower the risk of your business grinding to a halt in your absence.

Options for the Future

Having a succession plan gives you the power to decide the future owners of your business. You can:

• Transfer ownership to your heirs
• Conduct a business valuation and sell your stake to your business partner(s)
• Sell the business to a key employee
• Sell the business to an outside party.

There are many many possible succession plans you could make. However, conducting a business valuation is almost always essential, whichever path you opt for. Find out more about these frameworks in our upcoming articles.

Maintaining Control

A succession plan gives you control over the future of your enterprise when you eventually retire, become incapacitated, or pass on. Your succession planning strategy helps you design the transition process and select the person or entity to oversee your venture. Finally, depending on how it is designed, a succession plan can ensure your business value and legacy is preserved.

Looking On

We invite you to join us for this enlightening series. We aim to break down succession planning into 12 easy-to-understand articles starting with the first article which offers insights into creating a framework for a strategic succession plan. Follow us on this journey for detailed insights on how to take control of your business future.

Are you wondering about any of the issues mentioned above? Please email us at info@wilkinsonlawllc.com or call (732) 410-7595 for assistance.

At Wilkinson Law, we give business owners the clarity they need to fund, grow, protect, and sell their businesses. We are trustworthy business advisors keeping your business on TRACK: Trustworthy. Reliable. Available. Caring. Knowledgeable.®