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Small Business Succession Planning

Building your business takes a lifetime of work. Small business succession planning is a method for making sure the business survives when you retire or pass away.

Starting and running a successful business is part of the American Dream. You put so much into it with pride that it would be a shame to see it fail when you are no longer there to run it. Without small business succession planning, however, this is the most likely scenario.

Ninety percent of all businesses in the United States can be categorized as small businesses. These businesses are typically personified by one or two people driving the success. Now the startling news. According to the U.S. Small Business Administration, only 30 percent of these small businesses succeed after the passing of the critical business individuals that started the company. Even more startling, only 15 percent survive into the third generation of management.

Such statistics should cause you concern. You have worked incredibly hard to make your business profitable. How do you feel about the probably failure of your business when you pass away? Is there any way this disaster can be avoided? Yes. The answer is small business succession planning.

Succession planning is simply the creation of a plan to define the transfer of ownership of the business, specifying who will manage it and planning for tax and cash flow issues. Owners should begin succession planning when they health and active in the business. Why? Well, you need to take care of the financial issues, but you also need to mentor those you wish to take over the business in the future. You have worked hard to learn the lessons of what makes your business successful and you need to pass those lessons along.

Small business succession planning should be a process, not a one-time event. The plan can run over three to five years or five to ten. It just depends on your specific situation and business. The goal is to create a seamless transaction that will ensure your business will survive you. This also allows you to test certain individuals in their new roles to make sure they meet your expectations.

Proper small business succession planning also has a distinct financial aspect. Ownership of business assets is of great interest to the IRS. Specifically, a taxable event arises when ownership of a business is transferred. If this is done with no succession planning, such as when the owner suddenly passes away, the tax can be as much as 50 percent of the total business value. In most situations, this means the termination of the business and sale of the assets to pay the taxes. In short, a total disaster.

With proper small business succession planning, a financial plan is created to account for both the tax liability that will occur. Along with this, the plan will also be designed to make sure there is sufficient money on hand to cover business expenses. In many cases, funds are also provided to buyout a surviving spouse or family members if your desire is to sell the business off on your passing.

Small business succession planning is a critical business issue. You are already well ahead of most business owners just because you are thinking about the issue. Thinking, however, is not doing. To avoid succession problems, contact us today for a no obligation consultation on small business succession planning and your specific situation. Avoid losing your business in the future by taking steps today!

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