Entrepreneurs often equate business ownership to having a child. Tech pioneer Elon Musk is one of many successful business owners who has echoed this thought, comparing the demands of starting a business to the demands of feeding and caring for children. As such, it is no surprise that once we raise that child, once we get that business stable and successful and are ready to move on with our own lives, we want to make sure we leave the business in good hands.
Business owners can help to better ensure this transition into the next set of hands goes smoothly with some proactive steps. Four of the more important include the following.
#1: Choose heirs wisely.
Whether looking to keep the business in the family or transfer to a specific leadership team, it is important to have discussions with potential heirs to make sure they are interested and capable of taking on the business.
#2: Pick a structure for the transition.
There are several different ways to pass a business along to the next generation. You could use an estate planning tool like a trust, business operation documents to outline the details of the transition, or you could move forward with a sale.
There are pros and cons to each option and often a combination is wise. Carefully analyze the impact of each potential plan before moving forward.
#3: Do not neglect tax obligations.
Whenever there is a financial transaction, odds are high Uncle Sam will want a piece of the pie. Review the transaction and check for any potential tax implications. Even those who chose to gift their business to future generations can face tax consequences. In some case you can take legal steps to reduce these obligations. Uncle Sam may still get a piece of that pie, but there are steps to better ensure it is a small slice.
#4: Prepare for the transition.
These talking points help to begin the discussion. A carefully thought-out succession plan can better ensure the business you worked so hard to build continues to thrive well into the future. An attorney experienced in this interplay of estate planning and business law can review your situation and discuss the options that are most likely to help you meet your goals.