No one wants to work forever, not even business owners themselves. However, the business can continue to prosper after the owner has left. The problem is that the hand-off of business assets can be extremely complicated and if not done correctly, can lead to irrevocable consequences. That is why the importance of business succession planning is so vital. Here is a look at three common mistakes and how to avoid them.
Mistake No. 1 – Planning in Secret
Sometimes, the exit strategy is shared only with the person taking over the management of the business, but there may be more than one person who needs to be involved. Other family members or friends may be getting portions of the business. It’s essential to make each successor aware of the role he or she will play. A plan should put the success of the business first by carefully examining the strengths of each successor. If the owner is unsure of the best way forward; an attorney can help define those roles, match them to the right person, and prevent possible disputes down the line.
Mistake No. 2 – Improper Tax Planning
Don’t forget taxes. Understanding how inheritance and other taxes can affect the transfer of ownership and assets is vital and needs to be integrated into the succession plan. For example, distributing certain assets may reduce taxes associated with transferring ownership. An experienced tax attorney can identify what assets should be distributed, evaluate company structure for taxation purposes, and help mitigate estate, gift, and capital gains taxes. Taking this step could save owners and their companies thousands of dollars.
Mistake No. 3 – Waiting
When it comes to a business, the exit plan may not be on the front burner. This is a common error in many businesses across all industries. Many had to learn the hard way when it came time to retire, sell, or transition; learn from their mistakes. Starting soon – even right after the formation of the company, can ensure company longevity. This allows time for adjustments if circumstances require a temporary or permanent exit. Talk to an attorney. He or she can explain when to make changes and prepare everyone involved to pivot quickly.
Any Plan is Better Than No Plan at All
Having a Business Succession Plan will help prevent a company from stopping dead in its tracks when there is a change of leadership. The more detailed, the better.
There are many factors to consider, such as:
- Identifying potential successors.
- Developing the necessary skills for ownership.
- Legal and financial implications of the transition.
A good starting point is to create a written plan which includes specific details about what needs to be done, who needs to be doing it, and what legal factors need to be considered. To make sure that business operations will thrive through changes, contact Silverman Law Office to start the process of business succession planning. There is no time like the present!