• Peter Newman, CFA

Succeeding at Business Succession

Have you worked hard to grow your family business? If so, your efforts are integral to the economy and keeping more than half the US workforce employed. Whether you suffered or prospered during Covid 19, concerns about continuing to operate your business may have crossed your mind.


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. 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, customers, and employees.


Business continuity is an important component that will keep your business working as it transitions to new ownership.
Prepare for your business succession.

There are a number of reasons for 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. Failure to properly prepare can also lead to a loss of control over the final disposition of the company. A company may need to be sold to pay estate taxes depending on the financial situation.


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. Succession options may include an outright sale, a planned transfer of ownership to family members, or selling to employees. Working with your advisors on a plan for succession can avert a crisis and bring you and your family peace of mind.


The process of business succession is comprised of three basic steps:


1. Identify your goals.

When you know your objectives, it becomes easier to develop a plan to pursue them. For instance, do you want future income from the business for you and your spouse? What level of involvement do you want in the business? Do you want to create a legacy for your family or a charity? What are the values that you want to ensure, perhaps as they relate to your employees or community?


2. Determine steps to pursue your objectives.

There are a number of tools to help you follow the goals you’ve identified. They may include buy/sell agreements, gifting shares, establishing a variety of trusts, or even creating an employee stock ownership plan if your desire is that employees have an ownership stake in the future.


3. Implement the strategy.

The execution step converts ideas into action. Once it's implemented, you should revisit the strategy regularly to make sure it remains relevant in the face of changing circumstances, such as divorce, changes in business profitability, or the death of a stakeholder.


Keep in mind that a fundamental prerequisite to business succession is valuing your business. Our next blog post will discuss the key value drivers, benefits, and process to obtaining a professional valuation of your business.


As you might imagine, business succession is a complicated exercise that involves a myriad of tax rules and regulations. Before moving forward with a succession, consider working with legal, financial, and tax professionals who are familiar with the process.

Final thought.

Peak Wealth Planning cares deeply about its clients and wants to preserve continuity in the extremely unlikely event I were unable to continue with the firm. We have put in place a formal succession plan. If you know a business owner who can use help with succession planning, I can assist. Schedule a call to learn more today.

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About the Author

Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.


Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance and estate planning advice, Peak Wealth Planning is a fee only financial advisor based in Champaign, Illinois.



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