After years of hard work you can look back and be proud of your achievements. You’re a small business owner enjoying a steady income that provides a comfortable lifestyle for your family. You beat the odds. Like most entrepreneurs, you’ve been so immersed in the day-to-day realities of running your own business you haven’t given much, if any, thought to passing the torch. But the time will come when you have to turn your business over to someone else. It’s inevitable. So what’s your plan?
If you are like most small business owners, chances are you don’t have one, so the sooner you start the planning process the better. The good news is that you don’t have to go it alone. There’s lots of professional knowledge available to help you explore your options.
Start by recruiting key advisors to help you put a plan in place who can then act as your transition team when the time comes. You’ll definitely need a tax professional along with legal counsel with a background in estate and succession planning. On top of that, it’s a good idea to line up a business valuator and even an insurance professional so you’ll have the basic tools and documents you’ll need to ensure a smooth transition.
See about a will
It’s surprising how many small business owners have not even considered drawing up a will, not to mention already having one in place. Fewer still realize that you can have more than one will depending on the nature of the assets you wish to see protected. Don’t wait until the last minute to put your affairs in order. That’s the best way to avoid bequeathing major headaches to your family and successors, including unintended but potentially crippling tax consequences.
Managing the dynamics of a family can be a challenging process at the best of times and could be nerve-wracking to even consider as it relates to succession of the family business.
You may have a family that is active in the business and wants to buy you out – which could be fantastic – provided the family members work well together and are compatible. While one member may have been expected to take over the family business, others may disagree, leading to friction and unforeseen consequences.
You will want to consider how active you want to be and what payout you need to secure your own future. Your advisor will be able to calculate an amount, after tax, that you should be able to count on to ensure the level of stable living you are counting on for you and your family.
With estate freezes and timed buyouts, the taxman can transition with you from parent to child – or owner to employee group.
You should work with your advisor to ensure that you have considered those viable options that allow you to remain as active or as removed from your business as you would like.
You (or your family) may wish to sell outright, and if you do you should have your advisor review the statements with a due diligence attitude: a buyer will ask questions you should be prepared to answer. Preparation is critical to a successful transition.
You may have a family that is split among those involved in buying out the parents and those who do not. One way of dealing with this is to create a fund or holding company that can be used to equalize inheritances in an equitable manner, including managing buyouts among family members.
The point is to be prepared and review your options to ensure your security well into the future.
As always, it’s best to seek out professional advice early on rather than leaving it to chance to sort out.