Only 30% of businesses get passed on to family upon the death of an owner — for many reasons including non-interest of family members, family members not skilled to run the business, or divergent opinions about how the business will be run and who will lead it. The most important consideration in any planning is the people involved and for small, family-owned businesses, it’s crucial to know whether the next generation is interested in carrying on the business. Establishing whether one or all children want to continue the business helps guide your plan and protect the interests of your heirs.
With family businesses, a number of factors must be considered to protect the inherited asset. Planning helps to consider various scenarios such as whether one child wants to keep the business while others may desire a cash payout and what to do in the event that there isn’t money for a payout. A professional can help you address these issues as well as alert you to the benefits of sound succession planning including transferring a business to eager family members, with the following potential benefits:
Minimizing tax costs
Holding business assets in protected structures
Continuing the cash flow to the business owner post succession
Ensuring a successful transition of management to the family members
With small businesses, planning early sets the stage for future succession and addresses possible pitfalls. For instance, consider a couple launching a brand-new business that they hope to pass on to their (currently) young children. Though their retirement may be many years in the future, the couple should plan now to protect their legacy. The following documents should be in place:
An operating agreement
Establish partners of the LLC
Allowing for one child to assume business in the event that the other child(ren) no longer wish to be involved
Obtain insurance policy on all owners
Have buy-sell agreements
Handing over the reins of a successful enterprise can be highly attractive for a business owner and the potential new owner, and choosing a family member(s) as your successor is a more viable option when children or other family members are already working within the organization. If you are considering succession for your business entity, timely planning with professional guidance can protect your business and its future.
Contact Angela Odensky at The Law Office of Angela Odensky at info@odenskylaw.com.