Articles
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The Need for Business Succession Planning Small and family-owned businesses have a major influence on today’s U.S. economy. Family businesses generate one-half of the domestic gross national product and paid one-half of all wages earned in the United States last year. Ninety percent of all businesses in the United States are family-owned or family-controlled. Over $136 trillion in wealth is expected to change hands in the next twenty-five years, and the majority of it will pass as part of small or family-owned business succession. Over forty percent of businesses in the United States will pass ownership to the next generation within five years. A business succession plan takes into account management succession, liquidity planning, tax issues, employee benefit planning and estate planning. Tools used in succession planning include the following:
Business succession plans may incorporate one or more of these tools. Which tools are right for a particular plan depends in part on the structure of the business, the identity of current and future owners, and the owner’s objectives. For instance, the installment sale is a popular tool for transferring interests in a family-owned or small business enterprise when all family members are not involved in the business or the business is being transferred to a member of the management team who is not a family member. One of the most important things to remember about business succession planning is not to delay. Delays are often associated with tax issues, which arise from disposing of low basis ownership interests in the business, emotional or financial immaturity of designated successors or resistance to expending the significant emotional and financial capital to implement the plan. However, since historically fewer than thirty-three percent of family-owned businesses survive to the second generation and fewer than fifteen percent survive to the third generation, business succession planning should not be put on the back burner. |
