According to the Conway Center for Family Business, family businesses account for 64% of the U.S. Gross Domestic Product (GDP), yet 57% of family businesses have no formal succession plan.1 While the number may shock you, it is not surprising that many small business owners are consumed by the myriad responsibilities of running their businesses.
Nevertheless, owners ignore succession preparations at their peril and possibly at the peril of their heirs.
There are a number of reasons for business owners to consider a business succession structure sooner rather than later. Let’s take a look at two of them.
The first reason is taxes. Upon the owner’s death, estate taxes may be due, and a proactive strategy may help to better manage them.² Failure to properly prepare can also lead to a loss of control over the final disposition of the company.
Second, the absence of a succession structure may result in a decline in the value of the business in the event of the owner’s death or an unexpected disability.
The process of business succession is comprised of three basic steps:
Keep in mind that a fundamental prerequisite to business succession is valuing your business.
As you might imagine, business succession is a complicated exercise that involves a complex set of tax rules and regulations. Before moving forward with a succession, consider working with legal and tax professionals who are familiar with the process.
1. Conway Center for Family Business, 2019
2. Typically, estate taxes are due nine months after the date of death. And estate taxes are paid in cash. In addition to estate taxes, there may be a variety of other costs, including probate, final expenses, and administration fees.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.