Succession planning is a critical step for anyone who owns a business. People need to start thinking about this concept early on in life, similar to every other aspect of estate planning.
The succession planning process requires the current owner to identify key objectives, create a thorough decision-making process and develop a transition plan to begin while the owner still oversees operations. Many family businesses end up failing during the second generation due to an inadequate plan. For a business owner to preserve his or her legacy, the line of succession requires establishment early on. However, entrepreneurs naturally have concerns about the process. Speaking with an estate planning attorney can help alleviate those fears, and owners can avoid the most common pitfalls with proper foresight.
Gift and estate taxes
There can be some steep tax implications with transferring ownership of a business to a family member. Fortunately, there is a simple way to avoid having taxes that are too high. The current owner can begin to transfer ownership while he or she is still alive to a loved one. The owner retains control of the company for the moment, and the family can avoid some of the higher taxes typically associated with succession.
Best route of succession
Many first-time business owners want to give their companies off to their immediate family members. A business owner with a child may want that child to take control of the company to maintain financial peace of mind. When it comes to such a huge undertaking as transferring business ownership, employers need to ask themselves difficult questions, such as whether a family member is truly the best pick for the job. In some circumstances, it may be best for the owner to assign a family member the role of owner while hiring an outside person as the manager. The family member takes advantage of financial stability while the manager oversees the day-to-day operations.