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Business Succession Planning for Small Business Owners

Salem Oregon and Portland Oregon Business Succession Planning for Small Business Owners


Some Day You Will Exit Your Business, Do You Have a Succession Plan in Place?

You will someday exit your business. How you will leave your business is not known. It could be by divorce, bankruptcy, incapacity, retirement, sale, death or liquidation.   You just don’t know when or how you will exit your business.

Do You Plan on Retirement on Going to Work on Your Last Day?

directory-1334471_1280Maybe you are one of those people who wouldn’t know what to do if you were not working. On the other hand, maybe you are already felling that the long days, sleepless nights, stress, and lack of time to enjoy life is finally catching up with you? No matter what your plan, circumstances may dictate when you retire and what your standard of living will be in retirement.

What happens if you or your business partner or you are injured, incapacitated or die prematurely? Can your business survive?  Unexpected incapacity or death can not only lead to chaos occur among the remaining partners, but family disputes can make it very difficult to keep the business running smoothly during the transition.  Business succession planning can help to avoid these situations occurring with your company.

Baby Boomers Are Now Realizing They Need a Business Succession Plan

Baby boomers are turning 65 at the rate of 10,000 a day. Many baby boomers own a business that is their major asset. They have worked all their life to build up the business for their family to provide a good standard of living and to be able to pass on wealth to the next generation. Estate planning for baby boomers is a challenge because:

  • They failed to plan and many strategies are no longer available to them;
  • Many baby boomer business owners have all their wealth tied up in their business and lack liquidity necessary for retirement and a flexible estate plan;
  • Baby boomer business owners have a very short time frame to transition management with qualified key employees or family members to take over operations; and
  • Business owners are unaware of the loss that can occur in the form of reduced sales price, higher taxes, loss of vendors, and reduced sales when the transition plan is now put in place years before the time of change in ownership.

Determine Your Goals and Legacy

Asset Protection pageA succession plan is imperative for family-owned businesses as well as companies with closely held stock, including family farms and agriculture businesses.  It is important to decide now who you want to own the business-family members, key employees, third parties and who will be the key managers. A comprehensive plan will take into account your unique family and/or business dynamics.

Next determine what your business is worth and how it fits with the rest of your assets. Should you gradually reduce your ownership and shift to other types of assets or wait until you can maximize your business value?

Issues Business Owners Fail To Consider

successionplanningBusiness owners who decide to discuss business succession planning each have their own set of issues and concerns. However, the following is a list of the most common issues seen in business succession planning. Not all clients are concerned about all issues, but when an issue is important to a business owner, it is time to put his or her transition team together and start the estate business succession planning process. Frequently incurred issues include:

  • Where does the cash flow come from to take care of the surviving spouse;
  • Will distributions be made from the business after one of the owner’s death;
  • What needs to be done if the owner has not funded a buy-sell with life insurance or other sources of liquid assets;
  • What personal liability does the owner or spouse have for business real estate and how can the risk be reduced in the years before retirement;
  • How can a family business owner who will leave the business to a child who is working in the business , be fair to the other children who do not work in the business;
  • If the business is not transferred before the owner’s death, how will the business be operated during the transition;
  • Will valuation discounts for lack of marketability and lack of control still be available at the time of transition;
  • Does the buy-sell agreement need to be updated, funded, is it clear;
  • What happens if the owner or one of his or her partners gets a divorce:
  • Can the ownership interest be sold by installment; and
  • How can the owner’s estate plan be coordinated with the business buy-sell restrictions and minimize taxes and maximize value.

Selecting the Right Estate Planning Tools Depends on When You Want to Exit

Only you can decide the right time to step out of your business.  Selecting the right strategies and tools depends on your retirement plans and wealth transfer plans.  Further, the tools used to create your business succession plan will vary depending on your individual business and family circumstances. However, the succession planning will usually include the use of Trusts, buy-sell agreements, Charitable Trusts, tax planning, the use of insurance, funding options, valuations, entity formation, and other income maximization and wealth transfer strategies.

The tools and strategies used to create your business succession plan depend on your particular situation, time line, and finances. The first step is a thorough analysis of your current situation, your goals, your needs and your values. Only then will we consider:

  • Transition strategies;
  • Shareholder and buy/sell and cross purchase agreements;
  • Ownership transfers;
  • Entity formation or restructuring;
  • Arrangements for non-employee owners;
  • Income, Gift and Estate Tax planning to avoid a forced liquidation;
  • Lifetime gift planning to reduce taxes;
  • Integrating business wealth with personal wealth and coordination with your estate plan;
  • Business valuation analysis, what is your business really worth;
  • Retirement plan implementation; and
  • Use of insurance.

There are many other factors to consider and options available.  But all factors and strategies are designed so that you receive the maximum after tax proceeds on the transition, while achieving your overall goal, such as keeping the business in the family strategy.

How Do You Start Your Transition Planning?

display-panel-457381_1280You can try to tackle this on your own, but you must be sure you know what you are doing. You do not get a do over. You have worked all your life to build your business, do you want to trust it to yourself?

There is more than one discipline involved in making a smooth business transition. Let us put together your transition team so that your business in the best position for a profitable and smooth transition when that time comes. If you live in Salem Oregon or Portland Oregon or the surrounding area, pick up the phone and call me, Russ Pike, at 503.888.0952 today for a free consultation to discuss your business succession plan.

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