Owning your own business takes time, patience, and discipline. Many business owners equate their business to that of a child - they nurture it, plan its future, celebrate its successes and help it through the losses. It can be seen as a legacy to many who are near their retirement transition, and they expect it to be valued fairly and taken care of by the next generation of owners. It is why establishing a sound business succession plan is incredibly beneficial and can be absolutely necessary for some owners.
Selling your business will be the largest and most complex financial transaction of your life as a business owner, and succession planning is a series of logistical and financial decisions about who will take over your business upon retirement, death, or disability. Perhaps you plan to leave your business in the family, passing the ownership to child, sibling, niece, nephew or grandchild. Maybe you've had long standing employees who you know are capable of carrying on your legacy after you've retired.
Whoever you decide to pass your business to, there are many decisions that still need to be made, but with the help of a strong legal and financial advisory team, you can make the transition smooth and efficient.
This article covers the first steps in planning your succession. It asks questions you may not have thought of, and it touches on different ways you can generate retirement income from a well planned "Business Exit Strategy.
Many entrepreneurs that have built successful companies and have children may dream of leaving their business to the next generation.
Family businesses have been shown to strengthen family bonds and create practical work experience and lessons in business for younger people.
However, transferring your business that has appreciated in value over the years can leave your family with an unsavory amount of capital gains. This can burden your estate and leave your family with a tax liability they may not be able to cover. This can lead family businesses to be sold in order to afford these kinds of taxes.
The article below touches on "Estate Freezes" and how they can help you and your family avoid these kinds of situations.
As we mentioned at the top of this page, business owners hold their companies close to their hearts, and it can be a hard reality to come to terms with when its time to start letting go. Emotions come into play, memories of the past - of your success and your hard work - can motivate you to overvalue your business.
This doesn't mean that you should UNDERvalue your business, and this doesn't mean that you won't settle on a fair deal, once the deal is made. However, it would be wise to have professionals at your side to help separate the emotion from the practical so you can draw up a successful plan and offering for potential buyers.
This very helpful article outline the 5 common mistakes that are made when it comes to selling your business. This is a good, quick read that may help you gain a better perspective on the succession do's and don't's.
Lastly, although not necessary, you may want to know some of the key terms used in succession planning. Many owners can feel lost in the process of business succession, and the many legal and financial terms can be exasperating.
This two-page article simply lists some of the most common terms used, their acronym, and a description.
The Biddle Johnston Wealth Management Team