What will happen to your business when you pass away? This is an issue that many business owners prefer not to think about. While busy with the day-to-day pressures of running a business, many assume that they will figure it out someday. Unfortunately, the failure to engage in business succession planning after the owner’s death can be devastating to businesses.
Discuss Your Business Succession Goals With an Attorney
The commercial attorneys at Jones Gregg Creehan & Gerace counsel business owners to create effective business succession plans. We help our clients develop strategies to decrease conflicts and reduce their tax liability. Contact Jones Gregg Creehan & Gerace today to schedule your initial consultation.
The Benefits of Business Succession Planning
One of the key reasons so few businesses fail to survive the owner’s passing is the lack of an adequate plan for succession. Business owners are busy, and many wait too long to focus on their business succession plan. If they pass away unexpectedly, their business assets may need to be liquidated to pay estate taxes. Without a plan in place, the estate executor and heirs of the deceased business owner could be forced to sell the business at a low price because the heirs may not know the full value of the business.
Planning for the transfer of your business is as important as writing a will. Starting the process can be challenging because it will involve making difficult choices and require time. However, the planning process will help you understand and plan for how ownership will change. It will also help you create a strategy for paying for the transfer without hurting the business or requiring the new owner to sell it.
Business Succession Planning Gives You Peace of Mind
You will be more confident when you put a plan on paper, knowing that you won’t be leaving your business partners or family members in a bind after you pass away. It will also give the surviving owner and managers a clear picture of their roles and responsibilities. Unplanned transfers can cause ownership and management disputes. They can also cause a cash flow crisis that cripples the business’s ability to operate. Taking time to plan can also reduce conflict and potential litigation related to your business.
Questions to Ask Yourself If You Own a Family Business
A large portion of our economy is made up of family-owned businesses. Unfortunately, only a small percentage of family-owned businesses survive into the second generation. Creating a business succession plan will significantly increase the likelihood that your business will survive the transfer of ownership.
The goal of a smooth and effective transfer can be achieved with careful planning. The first step in creating a plan involves taking some time to consider the goals for your business. Asking yourself the following questions can help you narrow down your goals and make important decisions regarding your business succession plan:
- Would you like your business to stay in the family?
- Would you allow your business to be sold to someone outside of your family?
- Which family members or employees have the capability to manage the business?
- Which family members or employees are willing to participate in the business?
- How will you provide for family members who choose not to participate?
- Who will manage the business if you decide to keep it in your family?
- Do you intend to use your business to find your retirement?
- How will you shield your business from crippling taxes when you pass away?
Developing a Business Succession Plan Based on Your Goals
After you’ve taken some time to answer these basic questions, you can begin creating your business succession plan. The answers to these questions will inform the direction of your business succession plan. For example, if you want to preserve your personal wealth and fund your retirement, these goals need to be considered and planned for carefully. If you would like the business to be sold when you pass away, you can work with your lawyer to decide how to distribute the profit from the sale to your beneficiaries.
Selecting a Successor
It can be challenging to decide who should succeed you and continue running the business during the business succession process. There may be one member of the next generation who is more qualified, active, and interested in taking over the business. Other times, the business owner has taken the time to mentor this individual regarding the business. In this scenario, the challenge will be to ensure that the non-participating family members, such as siblings or the spouse, receive equitable treatment.
If more than one person is qualified and willing to take on the management, the choice can be more difficult. You can divide the ownership of the business between multiple people, but the management roles must be defined clearly. Another business succession option is to split the ownership into active and passive shares, giving the active successor enough shares to control the business. You may want to divide the business functionally so that each family member can control different well-defined business units or functions.
Transferring Your Business Assets
Successfully transferring your business assets without crippling tax consequences is an important goal. The attorneys at Jones Gregg Creehan & Gerace can help you develop a strategy for reducing your estate tax bill and keeping your business assets in your business. We work closely with accountants and financial planners to minimize tax consequences through the following business succession strategies:
- Life insurance
- The creation of a trust
- Making regular gifts to reduce the overall value of your estate
- Provisions that allow and are to borrow against the value of the business to pay for control of the entire business
Reach Out to a Pittsburgh Business Succession Planning Attorney
Whether you’d like to create a business succession plan or modify your existing plan, the attorneys at Jones Gregg Creehan & Gerace are here to help. Contact us today to learn more about how we can help you protect yourself and your business with an effective business succession plan.