Business Succession Planning-A Goal-Driven Process

Helping small business owners with their estate planning always brings with it a discussion about what will happen with the business when the owners wish to retire. In many circumstances, the business will constitute the owner’s major asset – constituting not only their primary source of income – but also the asset with the largest value and their “retirement.” Thus, the question becomes how to transition this asset from something that must be actively worked to provide the lifestyle to which the owner and their spouse has become accustomed, to something that will generate a similar lifestyle in retirement. To help accomplish this task, it is always a good idea to identify goals that are important to the client and their family.

The first issue to address is who is actually going to be the successor? In some cases, it will be an outside third party – possibly a competitor who is local, or someone who is not local but looking to expand their own footprint. In other cases, it may be someone internal as part of the management team or otherwise within the business. Another common option is to transfer ownership to the next generation of family members.

Before ultimately deciding on who is the best candidate to continue your business, addressing the owner’s goals and ranking them in importance can help decide the best course of action. These can include the following topics:

• Income needs for the owner in retirement
• Income needs for the owner’s spouse after the death of the owner
• Minimizing estate taxes (if over the applicable exclusion amounts)
• Treating children “fairly”
• Duty of “loyalty” to employees and customers
• Desire for business to remain a going concern

Many factors can come into play when evaluating the relative importance of the owner’s goals. Some may depend on how well diversified the owner’s assets are and whether they have provided for other retirement funds. Others may place greater value on how to treat multiple children “fairly” when some are active in the business but others are not.

If you find yourself in the situation of being a small business owner who wants to complete their estate planning, but not knowing how to address the business succession planning issues that are presented with it, the first step should be to meet with an attorney and other business advisors to have a conversation about your goals. Sometimes the two tasks can and should be dealt with at the same time. In other cases, it may make sense to get the basic estate plan in order and then to address the business succession issues.

If you would like to discuss your own business succession planning, please contact our office to schedule an appointment and meet with one of our experienced business planning attorneys.