Inc magazine reported that sixty-six percent of small-business owners have no formal succession plan.1 While the number may shock you, it probably doesn’t surprise you since so many small business owners are consumed by the myriad responsibilities of running their businesses.
Nevertheless, owners ignore succession planning at their peril, and possibly at the peril of their heirs.
There a number of reasons for business owners to consider a business succession plan sooner rather than later. Let’s take a look at two of them.
Estate Tax Bill
The first reason is taxes. Upon the owner’s death, estate taxes may be due that a proactive strategy may help to better manage.2 Failure to properly plan can also lead to a loss of control over the final disposition of the company.
Second, the absence of a succession plan may result in a decline in the value of the business in the event of the owner’s death or unexpected disability.
The process of business succession planning is comprised of three basic steps:
Keep in mind that a fundamental prerequisite to business succession planning is valuing your business.
As you might imagine, business succession is a complicated exercise that involves complex set of tax rules and regulations. Before moving forward with a succession plan, consider working with legal and tax professionals who are familiar with the process.
1 Inc.com, June 20,2014
2 Typically, estate taxes are due nine months after the date of death. And estate taxes are paid in cash. In addition to estate taxes, there may be a variety of other costs, including probate, final expenses, and administration fees.