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Small businesses and entrepreneurial endeavors make up the majority of our country’s economy. There are almost 28 million registered small businesses in the United States, and they have generated over 65 percent of the net new jobs since 1995. People put years of their lives into growing their businesses, but only a small fraction of business owners consider planning for what will happen to the business after they leave. Business succession planning is vitally important to the survival of any business, small or otherwise, and these are some things to consider when creating a business succession plan.


Plan for Yourself and Family

Within your business succession plan, you should determine your exit strategy, retirement date, and the amount of assets or resources that your family will need after that time. A business law attorney will be able to assist you in establishing financial independence after you leave the business so that you will not need to depend on the government or other family members for your wellbeing. If you are passing along the business to heirs, consider a payment strategy that will not only take care of you financially, but also not put the business in a financially precarious position.


Determine the Value of the Business

You should determine the value of your business in two different ways. First, you should figure out what your business is worth if you want to gift shares to heirs or if you were to pass away. The valuation used for gift and estate tax purposes is based upon accepted IRS procedures as well as established case law, and it often differs significantly from the actual value of the business if it is sold.

The second approach is to determine the value of the business if you were to decide to sell. Make sure that you have a competent team of advisors that will accurately value the business for current sale.


Plan for Your Employees

When creating your business succession plan, you must also remember to think of your employees and other staff. You need to decide whether you will hire someone to replace you in the business or if you want to delegate your responsibilities to existing employees. You also need to ensure that your employees will stay with the business after you have gone.

This can include compensation and rewards for excellent performance that extends to benefits, such as paid time off, health insurance, life and disability insurance coverage, participation in qualified retirement, and profit sharing programs. You could also consider including the ability to earn ownership in the business or participate in other equity incentives in order to convince your current employees to stay.


Determine Your Exit Strategy

If you decide within your business succession plan to sell to an outsider, the exit strategy will be fairly straightforward. However, if you decide to transfer the business to family members, a multitude of issues can arise. You need to explicitly state which children will hold the decision making power, and why. In addition, if one child is more involved in the business to the exclusion of the others, you should consider making gifts or bequests of other property to the other children in order to equalize the estate and avoid inter-family squabbles.

You should also carefully consider estate taxes and income taxes when engaging in family business transfers. If you do not, you could force your heirs into selling a lucrative business to pay the transfer tax liabilities generated at your death.


Call an Ohio Business Law Attorney

If you or someone that you know has questions regarding business succession planning or other business law issues in Cortland, Warren, Aurora, Youngstown, or Akron, let The Law Office of John C. Grundy help. We are prepared to assist you immediately.