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Wealth Planning

Do You Have a Business Succession Plan? Why You Shouldn’t Wait

By December 16, 2022No Comments

If you’re a business owner, you know how easy it is to get swept up in day-to-day work, from hiring employees to marketing to paying bills. All the demands on your time and attention can make it hard to create and update a business succession plan. But doing so is critical: It helps ensure the business you’ve worked hard to create will be in capable hands once you’re no longer there and sets up a clear means of converting your years of hard work into liquid assets.

Plan for Business Continuity

Affluent families’ wealth often can’t be found in stocks, bonds or bank accounts. For about half of ultra-high-net-worth individuals, the lion’s share of wealth lies in business ownership.1 Without a succession plan, business continuity and benefits to your family could be jeopardized. It’s not unusual to put off thinking about a time when you won’t be at the helm of your business. Depending on its structure, your business may die when you do, with assets used to pay off debts and to be distributed among your beneficiaries.

Create a Succession Plan

Business succession is simply the process of transitioning your firm to new ownership. Creating a succession plan gives you the opportunity to weigh the pros and cons of transferring ownership to a family member, a key employee or an outside investor. Selling a healthy business to a family member, for instance, can ensure your family’s financial well-being—but selling to an outsider, who doesn’t expect a “family discount,” can be more profitable. On the other hand, selling to an employee who knows your business inside and out can help to ensure that it continues to thrive under new leadership.

Know the Valuation of Your Business

If you’d like to work on a business succession plan, a critical component of that is to obtain an objective appraisal. Your business is likely to be your estate’s most significant asset. Knowing what it’s worth is critical for proper estate planning, including tax minimization. If the determined value of your business is likely to push your estate above the estate tax threshold, you’ll know to plan accordingly. For instance, you may choose to begin dispersing the value of your business to younger family members or other recipients sooner rather than later. Reducing the value of your estate in this way can decrease the eventual tax obligation should ownership eventually transition to a family member.

Think About Family Harmony

An authoritative succession plan can serve to minimize conflict over your business among family members. Absent a well-constructed plan, heirs with equal ownership and authority may disagree on important aspects of your business, possibly even leading to litigation.

Coordinate With Your Estate Plan

Business succession planning and estate planning complement each other. Done in coordination, they can serve to maximize wealth transfer and minimize tax liabilities over long time periods. Family wealth is often built and depleted within three generations, but it doesn’t have to be. Proactive business succession planning and estate planning are powerful tools to ensure multiple generations of both family prosperity and business success.

Review Your Plan Periodically

Creating a business succession plan isn’t a one-time event. It’s wise to do regular reviews to account for changes within your company or its valuation, tax law updates, industry developments and more. Reviews can also be used to “stress test” your plans to confirm whether they’ll play out according to your wishes.

Meet With Your Advisor

Your AdvicePeriod wealth advisor, backed by professionals specializing in business law, buy-sell agreements, tax strategy and other areas, can help you establish a succession plan or review the one you have, especially if you experience a life-changing event that could affect your plan.


1“Ultra-High-Net-Worth Individual (UHNWI): Definition and Criteria

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