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Hawaii Small Business Succession Plan |
Like most people, business owners are usually concerned about their own financial security, providing for their loved ones, and keeping their family happy. However, closely held business owners may have the additional concern of keeping the business successful after they are no longer running it, since they (or their family members) could depend on the business to provide continuing financial resources.
A closely held business often represents the business owner’s most significant asset. In addition, many business owners have strong loyalties to employees and customers with whom they have worked for many years. Planning for the transfer of ownership and management control can ensure that (a) the value of the business is preserved for the owner’s dependents; (b) loyal employees maintain their jobs; and (c) established customers are well-served.
The amount of financial resources available to the owner (or the owner’s family) when he or she is no longer working may be limited by the business’s value. Planning for ownership and management succession actually enhances value because planning minimizes potentially costly disruptions and disagreements that can take place when the transition happens without preparation.
Without planning, it is very likely that the value of the business will decline because the management successor is inexperienced, unprepared, or not well-received by key employees, customers, suppliers, or other important third parties. Also, a sound succession plan can help minimize estate taxes on the business and provide liquidity to the owner’s estate. In addition, the succession plan can be structured to minimize income taxes on business income or the eventual sale of the business. Both measures preserve cash resources and enhance the security of the owner and his or her dependents.
Some business owners anticipate and plan for their retirement. Others cannot envision life without the business and have no intention of retiring. Even those who have no intention of retiring must realistically acknowledge that circumstances beyond their control may force them to stop working at some point. An exit strategy can help to ensure that the owner and his or her family will be able to withdraw adequate financial resources from the business at the owner’s retirement, whether voluntary or not.
Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information on this site might apply to your specific situation, contact the office for more details and counsel.
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