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The Center for Financial, Legal & Tax Planning,
Inc. |
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Advisories
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Business
Succession: In A Nutshell Introduction Business
Succession is the process wherein a plan is made and implemented to transfer a
business from one generation to the next or from one owner to the next. Many business owners forget this important
step in business. In fact, a recent
survey revealed that 62% of distributors do not have a full and active
succession plan in place. They are in
danger of working all of their lives creating, building, and running a
successful business only to have the business dissolved at their retirement
or death. As such, a valuable asset is
lost. Thousands or millions of dollars
which could have been reinvested, saved, or enjoyed otherwise are lost in an
instant. Furthermore, failure to
implement a business succession plan can result in unnecessary estate
taxes. This is why succession planning
and implementation is important. Don’t
let your lifetime of hard work end up being a garage sale. Procedure The
first thing to understand in business succession is that it will take time to
implement. A number of steps must be
completed in order to receive the maximum value for your business and make
the transition as smooth as possible.
Also, there are many factors to consider when creating a business
succession plan. Your age, health, the
industry, the economy, your children’s’ interests, and their ages are just a
few factors. The first thing you will want
to do is employ a professional who has experience to guide you through the
planning process. After choosing a
professional, the professional will want to perform a variety of functions to
plan and implement your business succession program. The procedures include examining who the
potential heirs or buyers are, valuing the company, creating the ideal
scenario in which to sell your business or to pass it on, developing a
strategy to deal with estate taxes if any, and establishing a retirement
program. To
implement, the professional will start by looking at qualified
successors. It is a good idea to have
the successor work in the business prior to the transfer. The business can then be valued using a
variety of methods. By using a variety
of methods instead of one, the valuator can better justify the value of your
business. In creating an ideal
scenario to sell, the professional will review financial statements, look at
the operation, etcetera and will then define economic parameters signifying
when to sell. (By the way, right now
is the best time to sell based on economic and tax considerations!) The professional will also make suggestions
as to what you should do to maximize your business’ value. These recommendations will include things
such as housekeeping details, restating financials, and the like. It is synonymous to adding curb appeal to a
house in order to get a better sale price for it. The
professional will also look at estate taxes and set up a plan to deal with
taxes. Trusts and gifting can be
implemented to achieve lower estate taxes.
Finally, retirement planning will be addressed by reviewing your
retirement accounts, your business situation, etc. The professional will then make
recommendations for your retirement plan. Conclusion The
right time to start thinking about a succession plan is now. No one knows what tomorrow holds. Someday somebody else will be in charge of
your business if a proper succession plan is implemented. Additionally, many factors have come
together to create an ideal environment in which to sell or to pass your
business along. These factors include
a low capital gains rate, low interest rates, legal authority which lowers
capital gains taxes on C corporations, lower estate taxes, and many other
factors that make right now the optimal time to create a succession plan and
implement it. The Center frequently
engages in estate, business succession, and tax planning. If you have any questions or would like to
create a business succession plan, call the professionals at The Center to
begin the process. (08/05) |
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The Center for Financial, Legal and Tax Planning, Inc. |
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Satellite Office: Longboat Key, FL |
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(618) 997-3436 Fax: (618) 997-8370 © Copyright 2005. All rights reserved. |
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