What you need to know for successful succession planning

You started with a vision, built a plan and now have a thriving business to show for all your hard work. But there’s another plan that you should pay attention to sooner rather than later, and that’s the future of your business without you.

This planning stage will have a lasting impact on you, your company and your family. Whether you’re getting prepared for the unexpected, retiring soon or have decades of running the business ahead of you, having the right strategy for succession is key to a smooth business transition and maximizing value.

When do you start planning?

Early planning is important because succession is complex and the process could take years. The first step is to get clarity on the option that fits both your personal and business vision. Do you have a family member or relative who will take over? Perhaps you’ll want to hand off the company to a partner, management team or key employee. If so, will they buy you out?

And of course, there’s always the option to sell to an outside buyer. Is your business easily scalable? Do you have a clear organizational structure? Will your offerings still be relevant in 10 years? All these factors increase your company’s value, and you may need to start implementing changes now to make your business more attractive to buyers.

Passing on ownership to a family member

If you wish to keep your company in the family but haven’t chosen who should take the reins, establishing a trust allows your business to carry on without you having to commit to a decision.

Here’s how it works: The trust becomes a shareholder in the business. You own preferred shares with controlling votes that reflect the current value of the business. Your children own common shares, which will reflect future increases in the company’s value. These common shares are held in the trust with your children as beneficiaries. This allows you a substantial period of time to “wait and see” before deciding who should get control. Also note that because a trust is a taxable entity, separate tax returns have to be filed.

Consider timing as well. There could be significant tax advantages in giving the business to your children while you’re still alive.

How to create the best plan for you

Rules governing the lifetime capital gains exemption for qualified small businesses are complex, but there are ways to maximize the potential tax benefits. It’s a good idea to contact key advisors such as accountants, financial advisors and lawyers when developing your succession plan so that they can show you how to take advantage of strategies you might otherwise overlook. For example, you might not be aware that you can pay yourself a “retiring allowance” that can be rolled into your RRSP over and above your regular limit.

Here are a few components your succession plan should include:

·  how to structure the deal, its timing and tax treatment;

·  the financial benefits for you, your spouse and other family members;

·  changes to wills, insurance and perks such as company cars;

·  agreement on the extent of your ongoing involvement;

·  contingency plan for unexpected events such as the death of your chosen successor;

·  transitional roles for you and key employees;

·  how and when to communicate ownership change to employees, customers, suppliers, banks and other third parties; and

·  insurance planning that takes into account additional funds necessary to keep the business running or provide for the family while it’s up for sale.

The value of insurance

Once you have your plan outlined, your greatest risk is not being around to see it through, due to either death or disability. To further protect all that you’ve worked for, be ready for the unexpected by insuring your business accordingly. Insurance is the best way to provide full protection for your employees and your family.

With careful planning well in advance and the right advice from a team of advisors, you’ll ensure the succession of your business is tax-efficient, maximizes value for all stakeholders, minimizes issues and provides a lasting legacy.

To read the original article, please visit blueshorefinanical.com.