Resources

• Articles
• Legislative Updates
• Economic Recovery Services
• Client Newsletter
• Payroll Tax Guidelines
• 2009-2010 Tax Planning Guide

7 Steps for a Successful Family Business Succession Plan

You may be getting ready for the day when one or more of your children takes over your business. Yet government statistics show that only one out of every three family-owned businesses is successfully passed from one generation to the next. Frequently, this failure can be traced to the lack of a formal plan of succession.

Most importantly, such a plan anoints a successor for the entire world to see. It also can cover contingencies for the retirement, disability or death of a business owner.

Although there are no guarantees, a plan of succession increases the odds that the business will stay within the family. Here are seven steps that can help provide for a smooth transition of power.

1. Begin by assembling the family and discussing your intentions. This is usually the best time to address any personal conflicts that could cause problems later on. In addition, you should consider the possibility of using outside consultants or key employees.
2. Designate your successor(s). Make it clear who will be running the business when you are no longer around. Although this may force you to make some difficult choices right now, it can avoid future infighting that might ultimately destroy your business. Make sure the other key employees will remain onboard.
3. Secure adequate life insurance for yourself and other key executives. The proceeds from a life insurance policy can be used to pay for estate taxes if the owner should suddenly die.
4. Devise and execute a buy-sell agreement. This agreement typically spells out the terms for a buy out of the owner’s interest upon his or her death, disability or retirement. For example, it may cover the valuation of the business, the source of proceeds for the buyout and various other provisions. However, this valuation is not necessarily binding for estate-tax purposes.
5. Have a power of attorney document drafted. This legally binding document may be used to keep the business operating if the owner is unexpectedly incapacitated. It names the person to take over in the event this occurs.
6. Consider the potential impact of estate taxes. For instance, the succession plan can provide for the payment of estate taxes to effectively be spread out over 15 years when a closely held business is involved.
7. Last, but not least, tie up all the loose ends. The plan may provide guidelines for any other unusual circumstances or specifics relating to your particular profession or industry.

The sooner you begin to draw up a plan, the better. After all, the idea is to provide for contingencies.

For more information, contact your Alpern Rosenthal representative.

Comments or Questions