Benjamin Franklin said that two things are certain in this life: death and taxes.
So you worked hard to launch your business, managed to grow, and survived throughout the years within your niche industry. However, as the days go by, you are obviously getting older and older, and the inevitable will eventually come when you will have to move on from your current business position.
The last thing you want is to have the unfortunate happen, which is death, and leave your business operations in a state of chaos in terms of who manages what, when, and how. In addition, as you get older, you might want to establish an official “exit date” when you will sell your business off to someone who can continue the operations going forward.
Here’s your guide to setting up efficient succession and estate planning strategies so that your assets and business legacies can live on long after you’ve retired or deceased.
Succession Planning Overview
Succession planning is the process of identifying and developing a new leader to replace you in your business once you decide to retire, or if you were to pass away. Having this process set aside and developed upfront avoids chaos down the line, and helps assure the continuation of your business going forward after you’ve left.
Succession Planning – Business Exit Strategy
To implement a succession plan, you begin with the formation of a business exit strategy, which details your eventual exit from the business and what that execution process will look like. Your business exit strategy should include all of the following:
- Clearly defined objectives
- Clearly designed road map
- Listing of all business assets with ownership share
- Listing of all financial/legal nuisances
- Identification of criteria of the next leader to take over the business
- Process of identifying and deciding on who the next leader(s) will be
Usually your business exit strategy will include a sell of your share of the business to the next leader(s) coming on board, otherwise known as a “friendly sale.” However, some business owners might instead do a merger and acquisition to exit from their business position.
Estate Planning Overview
Estate planning is the process of arranging your assets while you are still alive, so that once you pass, they can be passed onto beneficiaries while minimizing various forms of taxes such as estate taxes, income taxes, gift taxes, and more.
Estate planning also helps to make sure that various assets get to the right people and managers that you designate to hold or control upon your death. Estate planning isn’t just for the very wealthy (top 1%), it’s for anybody that has a good amount of assets that they might be leaving behind at death.
Nav is the ONLY source for both personal and business credit score access, with advice on how to build your business credit to get funding, and save money. Get Started For Free
Estate Planning – Understanding Probate
The United States has a default estate planning procedure that takes place through the Probate system, but this is the most inefficient form of estate planning which can result in higher taxes and other drawbacks. A good business attorney that specializes in estate planning might suggest the usage of a living trust to manage estate planning.
Estate Planning – A Living Trust
A living trust must be funded during your lifetime and all assets should be registered in the name of the trust. Assets you placed in the trust can remain there (managed by the trustee) until the beneficiaries you designated reach the age or other criteria you established, which authorizes them to claim distributions from the trust. Another option is to just use a Will, which is less costly than creating a Trust, but a Will doesn’t completely avoid the hectic probate process.