Does Your Family Have a Business Succession Plan?

Owning a family business gives an excellent opportunity to pass on wealth to future generations, but this is only possible when you have a clear business succession plan created and implemented in advance.

Many business owners rethought their decisions about their succession plan and retirement in the light of covid. Many of them were confronting these issues for the very first time. Research from PWC’s US Family Business Survey shows that only 1/3rd of business owners with a family company in the United States have a documented, comprehensive and clearly communicated succession plan in place.

There are dangerous consequences for failing to have this plan in place, such as limited tax planning opportunities or not having the right people in place to run the company. Most people do not anticipate leaving their family business any time soon but an exit that occurs too quickly or without proper training opportunities for the next round of leaders could have unfortunate consequences with your existing customers and clients.

This makes it all the more important to retain the services of an experienced and dedicated lawyer to create a business succession plan that works for you and your company.

A business succession plan is a living document that will have action steps and task items that will need to be addressed while you’re still in place in the company. This gives you the best possible opportunity to influence the future generations and to make sure that everyone who is stepping into the leadership roles will have the appropriate support and training to do them in the future.

There are several different areas of transition including the family, the business, the founder, management and ownership. Make sure that you’ve also considered the estate tax consequences before working with a knowledgeable lawyer.

Company Owners Need Individual and Business Estate Plans

Many sad stories about celebrities highlight the importance of estate planning. Many of them leave behind complex assets and high value items. Without estate planning, this leaves their loved ones coping with probate problems for months or even years.

A similar situation applies to those entrepreneurs who don’t look at their personal and professional estate planning as worthy of effort. Consider the estate of Tony Hsieh, Zappos CEO, who passed away suddenly in a fire at age 46. With an expected net worth in the hundreds of millions of dollars, his family was shocked to learn that he passed away without a personal estate plan.

It’s believed that over 60% of Americans don’t have an estate plan at all. Without a personal estate plan, your loved ones might struggle to receive the assets that you intended them to have. As a company owner, however, you can’t ignore the related challenges with your business.

Your business requires considerations and questions like:

  • What happens if I become disabled or unable to make decisions within the business for a period of time?
  • Are there any other owners or key employees who need to be included in the planning process?
  • What existing documents do we already have in place with a succession plan?
  • Do we have insurance policies in place on key employees to allow us to hire new help and weather the storm if they were to suddenly exit?
  • What does the future of my business look like?

Most business owners want to know how their company will expand and grow in the coming years. It’s equally as important to have the support of an experienced business succession lawyer to guide you through the process and help you figure out answers to the questions above.

If you need help defining what your succession plan is and the key people involved in that process, now is the right time to document and implement that plan.

Reach out to our office today to learn more about estate planning, business planning, and how to make sure these work together.

Is Now a Good Time to Sell Your Business?

There’s a lot that goes into deciding it’s time for your next chapter when you own a business. You want to know what’s going to happen to it and the key people involved in that transition. This is documented in a business succession plan.

Selling your business requires a comprehensive business succession plan ideally created by an experienced business succession planning lawyer. After an extremely challenging 2020, many business owners might be thinking about making an exit because of the surge of buyers in the market and the possibility of increasing taxes. This has, for some, created the perfect storm for creating your business succession plan and executing it sooner rather than later.

One recent industry report shows that the pace of recovery has varied among sectors and companies but US business deal value and volume overall are up from 2020. Demand among buyers continue throughout the pandemic but there were very few businesses for sale on the market.

Many of those that were negatively impacted by the pandemic were waiting for opportunities to recover before selling. However, pent up consumer demand has meant that many of them have been able to bounce back faster than expected. This can create the perfect opportunity for you to determine what’s next in your business succession plan.

Even if you determine that now is not the right time to execute on a business succession plan, creating this document and the strategies to support a full transition to other company owners can benefit you by making it that much easier if and when a faster transition is required.

 

Estate Planning Matters for Your Small Business

Small business owners have plenty of things to think about in the wake of a worldwide pandemic that has shaken many things up. But that doesn’t mean you can afford to neglect the importance of proper estate planning or business planning options. Using this time to take a step back and reorient where you want the company to go in the near future is a good way to keep on top of these important tasks and ensure that if something happens to you, there’s a plan in place.

Every business owner has the long term vision and goal that their company is a big success, but it can take a lot of work to get there and even more work to sustain it after the fact. When you need to make a departure from the company, you need to know that you have a succession plan that will serve your needs and give your business the sustainability it needs.

That comes down to systems, a succession plan, and the right people. All of these elements should be in place well before anything happens involving you or another company owner needing to make an exit. One primary reason to engage in business succession planning beyond these basics is that if you’re in a partnership, you can ensure maximum options for the remaining partner should something happen to the other one.

Buy-sell agreements can help to accomplish this task because it ensures that unless intended, the family members of the deceased party are not the ones who get access to the company value. If there’s no buy-sell agreement in place, the business could be tied up in the estate administration if one of the partners of the company passes away. Most buy-sell arrangements for small businesses will automatically allow other owners to purchase the owner’s share in the company, allowing for a smooth transition to what the business looks like in this new iteration.

Are you stuck on how to make the most out of small business estate planning? Now is a good time to discuss all your options with a dedicated business succession planning attorney in NJ. Set up your meeting today.

Don’t Forget These Four Issues in Your Business Succession Plan

A person running a business cannot have an estate plan without a business succession plan and vice versa. These items must work together to protect your individual interests, your future beneficiaries and the future of the company. All too often, however, critical details are overlooked in your individual or your business succession plan. 

Time is Money Concept. Clock with Dollar Signs on a white background

A rock-solid plan for the future can give you greater peace of mind and help to protect your beneficiaries if and when you become incapacitated. The first of these issues has to do with incapacity.

Far too many people approaching estate planning look at it just for handling what happens when you pass away. However, it is becoming more likely that the average person entering retirement will at least one or more periods of incapacity during their lifetime in which they are unable to make decisions for themselves. Make sure that you appoint someone else for seamless asset management during these periods of incapacity.

Continued management of your assets and the business should also be included after you pass away. Place these assets inside a trust if necessary because the beneficiaries are not of sufficient maturity or age. Another thing to consider on behalf of your beneficiaries is divorce protection. Although your loved ones might appear to be married happily right now, nearly half of marriages end in divorce. Divorce protection can be one way to give you peace of mind about your loved one’s future. Finally, also consider whether or not beneficiaries could have creditor issues. Asset protection involves developing trust and other strategies that can help to shield these assets from being attacked by creditors. One of the easiest tools to do this, with the help of an experienced estate planning attorney, is to put the assets inside a fully discretionary trust managed by a third-party trustee. If you have questions about approaching the estate planning and business succession planning process, the support of a lawyer is instrumental in helping you to accomplish your goals. Schedule a consultation with an attorney today.

Don’t Skip Out on Business Succession Planning Issues

Even if you have an individual estate plan, it is not enough if you also own a company. Many different challenges can befall your family members or employees if you don’t have a business succession plan in place. In fact, up to 90% of businesses in the United States are owned by families but less than 10% of them will make it to the third year in the family and less than 33% will survive even into the second generationbusiness-succession-lawyer

Owners sit down in the business succession planning meeting to determine a plan to move forward in the event that an owner needs to leave the company due to illness, retirement or death. Estate planning strategies are customized in the business succession planning process and multiple options are evaluated with the help of a professional to ensure that there is a smooth transition in place.

Common issues addressed in the business succession planning process include disagreements, estate taxes, management capabilities, liquidity and percentages of ownership. In addition to developing a comprehensive business succession plan, those key stakeholders involved are responsible for communicating this to the relevant stakeholders. Training of key team members needs to occur well in advance and should never be left until the last minute.

Failing to have a plan can set the business up for a catastrophic problem and many business owners want to avoid this as much as possible. This business succession plan process is also an opportunity to figure out whether the family members that you anticipate taking over the company ae truly interested in doing so. If you discover that a child or other family members do not intend to take over the company, you can begin to make alternative arrangements. Schedule a consultation today with an experienced business succession planning attorney to learn more.

 

What You Need to Know About Estate Planning and Business Succession Planning from The Perspective of a Lawyer

The concept of business succession planning and estate planning must be taken together for anyone who owns a company. There are many different ways that businesses can be transitioned after the sole owner exits. Many people fail to consider that exiting on purpose is not the only way that someone could leave a business. 

A sudden divorce or incapacitation could present unique challenges in the business owner’s life, meaning a sudden departure. Many people still wish to actively control their businesses until they pass away, and therefore succession must be addressed in their estate planning documents in terms of their personal representatives. Others may have a clear transfer of power opportunity during their lifetime and may be able to continue as an employee or consultant of the business or retire completely. In certain situations, when power is transferred the business may be sold but there are other situations in which ownership may be retained.

The most difficult way for a client to leave a business is to sell it over the course of his or her lifetime, and then either retire or start a new venture. All of these different options are available to those who are contemplating the benefits of estate planning and business succession planning, and these should always be discussed with a knowledgeable lawyer.

Why You Need a Succession Plan for A Franchise Business

An unplanned exit, whether it is due to incapacitation, death or something else, could generate significant consequences for a business. It is extremely important to have a succession plan in place for every type of business, but franchisees must have them as well. It is a win-win situation when a franchiser requires or suggests that a franchisee put a succession plan in place. 

The succession plan doesn’t have to require a great deal of complication, but it will simply outline what happens if the owner leaves by death or otherwise. A planned exit is extremely beneficial to the business because it can lead to minimal disruptions in the company if there is a sudden and unplanned exit. The succession plan may be coordinated along with an estate plan which considers transfers through sale or other means.

This disposition can happen by using buy/sell agreements, family partnerships, life insurance policies, will and trusts, and more. These issues must be coordinated with regard to any restrictions that could exist under a franchise agreement related to the disposition or the sale. Furthermore, the state laws in your individual location can have an important impact on the outcome of the sale.   

These Crucial Elements Should Be Included in A Business Succession Plan

Opening your own business is an exciting opportunity, but it is also one that requires thought about things that will happen long into the future in an ideal situation. Most people find themselves suddenly grappling with the problems of a business succession plan far too late. Putting their loved ones in the difficult situation of trying to figure out what to do with the company, and even whether they are legally empowered to take action with that company without all of the tools and implements necessary. Thankfully, doing some advanced planning with the help of a business succession planning NJ planning lawyer can give you a great deal of peace of mind and also provide clarity to your loved ones in the event that something suddenly happens to you. 

There are six critical elements of a powerful business succession plan that enables everyone in a power position to make the crucial decisions required when someone suddenly becomes disabled, wishes to exit the business or suddenly passes away. These six elements include:

  •   Beginning the planning process as early as possible even before the business owner has a clear idea for the exit plan.
  •   Structuring the plan with some flexibility to allow to evolve or change
  •   Bifurcating equity in control
  •   Diversifying the planning techniques used for the future of the business
  •   Transferring any tax savings
  •   Incorporating non-tax factors such as family harmony when the exit plan does include some family members but not others.

The right business succession planning lawyer is a strong advocate for the rights of the business owner as well as for the future of the company when engaged early.

Business Succession Planning Faces Major Opportunities in Coming Years

Historically low interest rates have been a major catalyst for economic growth in the last several of years, but this has also led to a surge in private equity firms that are looking to invest in a broad range of small and medium sized businesses. 

This means that there is a once in a lifetime opportunity for the owners of these companies to become new millionaires and to raise their value significantly. Research collected by BizBuySell inside reports showed that a historic number of small businesses were sold in 2017’s third quarter.

This represented a 24% increase in the number of small businesses sold than the year before. Furthermore, Thomson Reuters shares that private equity funds generated more than $340 billion in 2016 and there has been a 12% increase in the number of private equity funds over the course of this year. Since the Federal Reserve may raise interest rates throughout 2018, now is the appropriate time to schedule a consultation with the business succession planning attorney to talk about the pros and cons of doing your planning now.

Four Tips to Remember in The Process of Business Succession Planning

Whether it’s a family owned business or a company that you have purchased, you need to be prepared for the process of succession planning shortly after you buy it. It might seem counter-intuitive to think so far into the future when you have only just obtained the company.

However, there are four critical steps that you need to articulate now. The truth is that no one can really predict exactly when they will exit the business. It may be your concept that you will exit when you are near retirement and may pass it on to a future generation. However, if you don’t have any children or other family members who are interested in stepping in or if a sudden disability raises questions about succession much earlier, you will need to be prepared by having had a conversation with a business succession planning lawyer. hire a business succession lawyer for your company

Articulating the crucial agreements and documents in place well in advance gives you options. The four major tips that can enable you with the process of business succession planning include:

  •       Starting early, because too many business owners put these important decisions off until the last minute and this does not account for the unpredictability of life.
  •       Choose a successor. You need to evaluate whether the person you choose to step into your shoes is interested and willing to do so.
  •       Establish value. Make sure you establish the value for your share of the business or the business overall by consulting with a business appraiser or a CPA.
  •       Use a formalized working agreement. A working agreement can make a business transfer much simpler and the succession process should be clarified so that it can be activated immediately in the event of a sudden decision to exit the company.

Is a Lack of Business Succession Planning Threatening Your Company’s Health?

Have you spent a good portion of your life growing the viability of a business? If so, you can’t ignore the second step of a firm business foundation: creating a succession plan that carries on your legacy and your offerings. The right business succession planning lawyer can help you with this process so that you have a clear idea about the future. business succession planning lawyer

Far too many people and successful company owners never engage in the process of business succession planning. It might seem like the process of transferring the company is too far off the future to worry about these concerns but a sudden incapacitating event such as a disability or an accident could render you unable to make decisions in the business and force you and your loved ones to make a decision without maximizing all of the options.

Only 16% of firms have discussed as well as documented a succession plan, according to a Price Waterhouse Cooper’s 2014 study. The potential problems associated with lack of succession plan have not been effectively addressed or fully grasped by many different companies. Most family-owned businesses struggle to keep that family on status passed to the second generation which presents a unique concern that should be discussed directly with your business succession planning lawyer.

Many of the succession plans in place focus only on the financials, but the best succession plans will also consider a people focused combination of leadership development and succession management that helps to set up the business for success in the future. To learn more about the process of business succession planning and why having a documented plan can help you significantly, consult with an experienced lawyer today.

It’s Essential to Connect Personal Estate Planning and Business Succession Planning for Business Owners

According to data from the U.S. Census Bureau, in 2012, there are 27.6 million businesses closely held in the United States. Business ownership and entrepreneurship are critical drivers of legacy creation as well as significant wealth, but it becomes even more important for the individual to approach estate planning from their personal perspective as well their business. 

Owners of closely held businesses should commit to succession planning and looking ahead for exit strategies as well as estate planning as well. Up to 80% of business owners, according to research conducted by the Family Business Institute, indicated that they will be able to pass their company on to the next generation.
However, business succession statistics actually show that there is a decrease in business survival. Up to 64% of business owners in 2015, did not have any business succession plan at all, putting their family’s greatest source of security and wealth at risk. You need to consult with an experienced business succession planning attorney as soon as possible to identify all of the opportunities to minimize your risk and this includes looking at succession planning and exit strategies as well.

Fixing A Business Succession Planning Problem

Consulting with an experienced business succession planning attorney is strongly recommended in the event that you have connections to another company. If you want to transfer your business to a successor or if you are getting ready to retire or slow down, it is important to identify the appropriate business succession planning process to make things as easy as possible on your successors as well as to minimize taxes. Most people put this process off because they assume their exit in the business is so far off they don’t need to think about it. However, a sudden event like a disability can happen at any time.NJ business succession planning

There are several common problems associated with business succession planning. These include:

  • Treating children who will not be involved in the business fairly.
  • Transferring or selling the business to children without being hit by serious taxes.
  • Selling the business to a key employee if that individual has no money.

All these plans should be discussed well in advance with your business succession planning lawyer. Having the intention is one thing, but you also need documents ready to back you up if you decide to move forward with these plans. Legally valid documents can go a long way towards protecting you and helping you craft the transition most valuable to the business and to you.

Consulting with an experienced attorney and identifying potential strategies such as a profit-sharing plan, a qualified personal residence trust or an irrevocable life insurance trust may all be beneficial tactics for identifying a way to pass on the business in a smooth manner. The business can otherwise experience significant interruptions or even face financial jeopardy if the succession plan is not identified by a knowledgeable attorney well in advance. A lawyer can assist you with this process by sitting down and getting to know you and your individual business.              

Business Exit Planning: The Sooner, the Better

When it comes to looking years down the road in your business, one of the most important things you can do is to plan early. Starting now allows you to understand all the key issues while also building in time for training and flexibility.

Most business owners do not anticipate their own exit, whether it’s through retirement or other reasons, such as disability or divorce. This can prove problematic for the entire company, not just the owner. This is because the transition of a business should be planned well in advance with careful consideration given to who will take over the major management aspects of the company and other responsibilities.

A business owner usually has the mindset that he or she will be in the chief role for many years to come, but he or she may naturally tire of the responsibility or need to depart suddenly. Without any forethought, this can lead to scrambling to choose the right person. 

Aside from planning ahead for the transition of staff and the right training time for someone to step into bigger roles, there may be tax consequences related to how the business is handled, too. The critical documents for the business, like a buy-sell, may also outline what is and is not allowed. Anyone who could potentially be impacted by a business owner leaving should be thinking about the role of business succession.

It might seem like it’s too early to plan for departure, but it’s far better to accomplish these conversations earlier rather than later. No one expects to suddenly depart their own company, but failing to even consider the option could lead to conflict and confusion if the event does happen.

The right lawyer can help you understand the role played by business succession planning and why it should be incorporated into your business strategy as soon as possible.

How to Use Business Succession Planning to Help Your Firm and Your Staff Grow and Thrive

Meeting with an experienced business succession planning attorney can help you overcome what’s known as decision inertia. Meeting with a professional who has assisted others with a business succession planning process can minimize the uncertainty that may exist when it comes to thinking about your future. Helping you determine the desire for passing on the business can generate some difficult questions but also some important ones.NJ business succession lawyer

Many small businesses today struggle to create a comprehensive framework for developing their staff and yet this can be critically important in the perspective of business succession planning. Although you might be thinking traditionally about who will take over the business, it is equally important to understand how you will help develop and train the current staff that you have so that they can step into management roles.

Thinking about who will play these key roles down the road can be extremely beneficial for the firm as well as it minimizes confusion and uncertainty in the event that you have to suddenly exit. Remember that business succession planning is not something that comes into play only when you pass away or sell the business.

It could also come into play in a situation in which you are disabled and suddenly need to exit the business. This is why there are so many benefits to conducting your business succession planning now. Many people cannot anticipate accidents or disabilities that will have a significant influence on their personal as well as their professional life. Having a business succession plan that identifies talent now and works to help people grow into roles can be extremely beneficial.

Reasons to Have a Family Business Succession Planning Talk Now

Every family business should have succession planning as a key priority. Sooner or later every individual will want to retire but there are numerous other reasons why you may wish to step out of a business. Ensuring that you have enough money to retire on and that you have key procedures in place in the event that someone wishes to leave the business is important not just for the future of the company but also for your loved ones.

Think carefully about whether or not the business will be carried on by relatives. If this is the case, then it is more important to have a clear business succession plan to manage the issues including a smooth transition between the people who are working there now and future owners of the business. In any family business, succession planning can become immediately more complex as a result of the emotions and the relationships involved.

According to research, more than 70% of businesses owned within the family will not survive the transition from the founder to the second generation. In the majority of cases, the challenges that ultimately close down these businesses are family discord and taxes. However, setting up a meeting with an experienced business succession planning attorney now can help to address these issues and avoid them entirely. You may wish to consult with eth tax component as well as the potential for reorganizing the corporation and the strategies by which future business owners and managers will be trained in their new roles.

                                                                                                                

Key Things You’ve Got to Know for Small Business Succession Planning

No matter the size of your business, it’s important to think ahead to the future. This could be one of the most important ways that you protect your loved ones and also ensure a successful financial future for your business. What follows are several of the most important tips to keep in the back of your mind when it comes to succession planning. The longer you put off the process of succession planning with an attorney the harder it will be to take action.

Here are four tips you need to use to maximize your succession planning opportunities immediately. These include:

Here are four tips you need to use to maximize your succession planning opportunities immediately. These include:

  • Involving your family. No matter what vision you have for your future, make sure that your relatives are at least included in succession planning discussions.
  • Put together a team of advisors. Your dream team of advisors should include a business succession planning attorney, business partner, succession planners and even accountants to guide you through what could be a complicated process.
  • Include and exit strategy within your business plan. There’s a good chance that you already have a business plan identified for the next several years. Your exit or succession strategy should also be incorporated into this plan.
  • Identify and train a successor. One of the most common mistakes made in the business succession planning process is not getting the appropriate help and training opportunities for your business today. Thinking long range means you need to carefully consider who is within the company now who could potentially be trained to take on a more management role. This may even require bringing in outside talent if you do not currently have someone who is interested in this potential role.

Waiting too long could jeopardize the future of the company because the person you select may not have the appropriate background or training in place if something were to happen to you. Consulting with an experienced business succession planning attorney is often a first step towards success.

Wealth Attrition and Family Business Basics

It’s often been called the Holy Grail of family business succession plans: anyone currently in charge at a company expects that someone within the family will take over operations as the former owners, the parents, step down.

The reality is that it does not happen that often. Most family business owners have this as a goal and dream, but it rarely works out this way, making succession planning options all the more important for parents.

A recent study by Forbes found that although US families have better wealth attrition numbers than Europe, it’s hard for children and future generations to maintain or grow wealth the way their parents did. US families have a 60% wealth attrition rate for each generation, although the European stats show only one-third of the US rate. However, in Europe, up to 75% of family businesses with stay in the family for four or more generations. In the US, it’s rare for a company to stay within the family for even two generations. business succession lawyer NJ

This highlights why family businesses in the US need more in their succession plan than outlining which child will take over responsibilities. What happens if that child has no interest in maintaining the family business? If he or she has other plans and there’s no contingency? Businesses, and in particular family businesses, are exposed to big risks if no succession plan has been outlined, but it can also be a mistake to assume that children or other family members even want to step up to the plate with a family business.

Have a real conversation with children or other key family members about what role, if any, they’d like to play in the business in the future. It might be hard to accept that your loved ones don’t have the same passion and drive for the company, but it’s much better to know now than to expose the business or the family member to a situation that is not ideal.

There are many other options for handling a family business, such as finding in-office talent to rise up the ranks and take on leadership positions or even selling the company. In the midst of the day-t0-day management of the company, it can be hard to shift your mindset from that of dealing with what’s right in front of you and seeing the long-range vision, but it’s also important to incorporate this into your planning.

A family business requires a lot of work and dedication. If your loved ones don’t have the passion now, begin to articulate how someone else might ultimately take your place if something happens to you.

To discuss succession planning issues in greater detail, set up a meeting with a lawyer.

Why Your Choice of Entity Matters for Business Succession & Tax Purposes

When you start your business, it’s easy to get overwhelmed with all the decisions you have to make, but this is no excuse for overlooking the power of choosing the right entity. When it comes time to sell the business, what you chose as your entity can make a big difference. Read on to learn more about how these choices will influence you. 

  • Sole proprietor: The classification of gain or loss is important here because it depends on the nature of the assets. You may also need to factor in whether you’re passing on the business to family members or someone else and make sure there’s a training plan in place.
  • Corporate shareholders possess a capital asset- stock, meaning that when it’s sold, there’s a capital gain.
  • Partnerships and LLCs will typically report ordinary income when the business is sold in addition to capital gain

Planning for a future that seems far off is not always easy, but a business succession planning lawyer can help. There are several steps you should take to protect yourself:

  • Review your buy-sell agreement and any other business agreements
  • Consider the cash value of the business and how this might influence a sale
  • Plan for a clear transfer of ownership if you have a family business

Having these items documented well in advance and considering both the succession and tax implications for your business is critically important. Don’t make the mistake of overlooking these.

 

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Shah & Associates, P.C. Estate Planning & Elder Law Blog