Time To Step Away From Your Business?

Maybe not today or tomorrow, but one day in the not so distant future, you’re going to do it: Step away from your business and hand the responsibility for its operation to someone else.

But who will it be and how will you do it? There are plenty of tax, legal, financial and estate issues to consider – and that’s where business succession planning comes in. Here are some of the key elements you need to consider.

• Don’t leave things to chance. To avoid the loss of your business or its forced sale at substantially reduced value – and to ensure your family will have sufficient income to sustain the lifestyle you want for them – look to disability, critical illness and life insurance as a means of protecting what you’ve built.

• Make it legal. Establish a buy-sell agreement that sets out the terms and conditions under which your share of the business will be acquired by co-owners, partners or other stakeholders.

• Plan for retirement. If you will be relying on your business as a source of retirement income, you need a plan for converting its value to cash when the time comes. There are three basic ways to do that: Sell your business as a going concern to an outsider; wind it down while you slowly deplete its investments in a tax-efficient manner; or pass it on to a relative, co-owner or key employee.

• Prepare for the tax burden. The proceeds from the sale or transfer or your business could be subject to income and capital gains taxes. By planning now, you can minimize the tax that will be paid by you, your estate, or your heirs. For example, a family trust or estate freeze could effectively reduce taxes when you transfer ownership to family members.

Life insurance can be a cost-effective way of financing the succession without saddling the business with the need to borrow money.

• Put your wishes in your will. It’s critical that you make provision for the disposition of your business in your will, especially if you’re planning on passing it on to a family member after your death. Set out how the family member will acquire the business and avoid disputes by ensuring every family member is taken care of in an equitable way.

The ‘exit strategy’ you choose should be right for you and your family. To be sure you’ve got it ‘right’ get input from your accounting, legal and financial advisors and your family – that’s the best way to a successful succession.