Your business represents a big part of your wealth. Here’s why you need to protect it with a succession plan.
Your business represents a big part of your wealth. Here’s why you need to protect it with a succession plan.Many years ago, I had a friend who was a financial advisor and specialized in estate planning. In encouraging people to establish or update their planning, he would tell them that not having a plan was the same as having a plan to leave extra money to the IRS, to the detriment of their intended heirs. The same goes for business succession planning. Not having a succession plan doesn’t mean that you will never retire or die, it just means that when you do there will most likely be a dispute and a judge or mediator will decide what happens to your business.
Wouldn’t it be much better if you established a plan for your business?
There are many reasons why a business succession plan is important. For many business owners, the business represents most or a significant portion of their wealth. Whether the plan is to keep the business in the family, sell to employees, or sell to an outsider, a written plan will play a big part in a smooth transition, which will preserve the value of your business.
A transition plan will also help you prepare for any unplanned circumstances, such as death, disability, or inability to work. When something bad happens, it is usually too late to execute an effective plan.
Preparing next gen leaders
If the business is being kept in the family or sold to employees, a succession plan will go a long way in preparing the management team or next generation to take over the business. This process must commence long before the transition begins to be successful.
Finally, an effective plan will help you focus on the value of your business and the steps that you can take to increase that value. Many owners are unrealistic about the value of their business, believing that value is simply a multiple of something, the amount they put into the business, or an uninformed guess. The value of a business is based on future cash flow and risk. Good cash flow and low risk translates into high value. What can you do today to increase the value of your business?
We’ve got your back
If you’re ready to plan for business succession but don’t know where to start, contact me at GShanker@krscpas.com.
You will want to prepare your financial statements in accordance with an accounting framework that’s appropriate for your business. Most of the time, you’ll opt for a CPA to produce your financial statements. Getting an accountant’s blessing is especially useful when you are applying for more credit from a bank.
The IRS recently issued guidance on the 20% tax deduction for Qualified Business Income (QBI) and rental real estate activity. Here’s what you need to know: