Estate Planning for Small Business Owners
It's extremely common for those who own family businesses to put their succession plans on the back burner. You're focused on running and building the business and don't foresee the immediate need for an estate plan. The problem with this way of thinking is that if something should happen, a large chunk of your business might be lost to fees and taxes, or there may be a power struggle among your heirs as they try to determine what's next.
These impacts have ripple effects that extend to your employees as well. It can threaten their job security when their employer goes through sudden and rapid changes. These are only several reasons you should create a succession plan now while you're still in control of your business.
Determine the Power Structure
Whether you plan to sell your business to someone else or hand it down to family members, you need to have a vision of how it's going to run without you. No two succession plans are identical because business owners have unique goals. You might want to retire at a set date and participate in the transition so that you have more control over the process. Some business owners stay involved in the business while taking different roles after handing it over to their heirs.
It's important to sit down with your family members and tell them your intentions so that they're all on board. They'll know what you expect of them and what parts of the business they're going to be involved in. This prevents legal disputes after you hand the business over or when you pass away.
Assess the Value of Your Business
A business is an asset, and as such it's important that you assess its value. The same goes for any property owned by the business. Properly appraising assets ensures that one of your heirs can buy out the others if one of them is more interested in taking over the business than the others.
It's entirely possible that your children will want to focus on their own career goals and leave the management of your business to their siblings, so planning to give them a way out by selling their interest in the business is important.
Plan for Taxes
The value of your business and any accompanying real estate could impact estate taxes, so knowing ahead of time what your property is valued at will help you account for this. You don't want to make it impossible for your successors to take over your business due to an inability to afford their tax burdens. This often results in businesses being sold to new owners in order to pay off tax debts.
A good succession plan includes determining how to reduce your successor's tax burden when they take over. It's a good idea to discuss your tax planning strategy with someone that has experience in these matters, such as an attorney that works in estate law.
Make a will as soon as possible
It's impossible to predict the future, so you should have a legally valid will that clearly lays out how the business will be managed once you’re gone. It’s good practice to ensure that your heirs are all aware of the conditions stipulated in the will in order to avoid any surprises down the line. A will should be updated frequently, particularly after significant life events like marriages or births.
