BUSINESS SUCCESSION PLANNING

While your business was getting started the most important thing on your mind was how to survive and turn your company into a profitable venture. Once that is accomplished you need to begin to think about your future. Even though retirement may be far off, it's worth it to think about what issues you may face once you stop running your business. You must begin to consider a business succession plan to ensure that this transition goes smoothly.

One of the reasons to create a succession plan is for tax planning. If you die without some kind of plan in place, estate tax can be as high as 55 percent. Any estate tax that is due must be paid within nine months. This can obviously be a huge burden on your business.

When preparing a succession plan the first thing to decide is who gets the business next. When making this decision keep in mind that there's a big difference between who runs the company and who owns the company, be realistic in your choice. If your kids don't want anything to do with the business, don't force them. An uncooperative family member can ruin the whole estate plan after you're gone. Your succession plan should address the following questions:

• Do you want your children to take over the business?
• Should it be some children but not others?
• Are your children able to take over the business?
• Should your children just own it and someone else manage it?
• If you die, will your spouse get control of the business?
• If you sell your business outright to your children, will you pay capital gains?

Once you've made the ownership decision, it's a good idea to get a business valuation. Most business owners are shocked to find out how the much your business is worth for tax purposes. The IRS considers the value of your business based upon the "Highest and best use". That means that while you may think you could realistically get $100,000 for your business assets, in the eyes of the IRS, your business might be worth $200,000. The business valuation can help determine what the true value of your business is. A valuation also provides a starting point for projecting what your tax liability would be if you (or your heirs) were to sell the business. Minimizing this tax liability is one of the main goals of a succession plan.

After you have determined who is going to own the business you need to consider who is going to run the business. Dont look solely ay someones skill set when deciding who should run your business. Also consider the person style. One of your goals is to get people who think like you and feel like you, even if they don't necessarily have the same set of abilities. Finally, don't restrict your search for a successor to outside your company. Often the best successors come from inside the organization. The key, whether the person comes from within or outside your business, is to find somebody who understands your goals and principles and who the other people of the company trust. Once you have found that person know that it will take time to work with that person to make sure the person will be ready to take over the business.

Communication also plays an important role in succession planning. You will need to communicate your choice for a successor to your other employees as well as your customers. You can help do this by consistently, plainly saying with words and actions that this is your choice-the person who will run the company after you leave. Again this takes time, but if you put in the necessary time, it will pay off in improved effectiveness of the person you leave in charge and, with luck, will lead to equal or even better growth prospects for your company after you leave.

There are many ways to accomplish the succession plan for your business including trusts, private annuities, life insurance, buy sell agreements and self-canceling annuities. But be careful when doing your business planning as with the many ways to effectuate your plan come many hurdles and potential pitfalls. Be sure to seek appropriate professional assistance from your legal, business, and tax advisors

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