Estate Planning for Your Business

POSTED ON: October 28, 2021

Estate planning for a business, known as business succession planning, imposes a discipline that is not always welcome by business owners or their employees. The plan is based on what is unthinkable for most business owners: that they will one day exit the business, pre- or post-mortem. However, lacking a…

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Estate Planning for Your Business

Estate planning for a business, known as business succession planning, imposes a discipline that is not always welcome by business owners or their employees. The plan is based on what is unthinkable for most business owners: that they will one day exit the business, pre- or post-mortem. However, lacking a succession plan almost guarantees that any business will fold after the owner becomes disabled, dies, or retires.

How to Start the Business Succession Plan Process

An understanding of the business organization itself and all of its moving parts is necessary. Each company must evaluate all processes, management, finance, product/service delivery, tech infrastructure, etc. While a business owner and the key employees understand the entire business from soup to nuts, the attorneys and financial professionals who will create the legal documents and provide funding products (e.g., disability insurance and life insurance) also need this information.

A business succession plan does not happen in a week, or even in a month. It can take a year or longer to design and implement a plan, depending upon the size and complexity of the company. An accurate valuation of the business, usually performed by a CPA with valuation credentials, is also a lengthy process. Do not be surprised if there is pushback within the business against the professional performing the valuation. An outsider digging deeply into the business financials is often treated like an interloper. Consequently, make sure that everyone in the business knows the valuation expert is a fiduciary and is providing a valuable service to the business. Cooperation is essential.

Aligning with the Personal Estate Plan

Crafting a business succession plan without regard to the personal estate plan of the business owner is reckless and exposes the family and the business to potential catastrophic financial losses. The personal estate plan will contain strategies used to limit the family’s exposure to tax liability, when the business is sold or transferred. It also protects shareholders, if the family is maintaining control of the business, from personal legal and financial challenges. Coordination is key.

Preparing for the Unexpected Fosters Focus on the Future

Preparing for the sale or transfer of a privately held business provides a sense of security and continuity for all involved. Key stakeholders appreciate the investment, confident that their efforts will not evaporate, if an unexpected event occurs. Family members who depend upon the business for income may not be directly involved with the succession plan, but the security it creates is appreciated.

How Intrusive and Time Consuming will Creating the Business Succession Plan Be, and What Will It Cost?

These are the bottom-line reasons that business owners do not like succession plans. The cost must be understood as an investment in the future of the company. Intrusion is a real problem in companies where teams do not work together or there is infighting among departments. The business succession plan forces these issues out into the open. Bringing internal issues to light, especially if they are deeply embedded in the culture of the company, could be the difference between the company surviving through a change of ownership and having it implode for reasons the owner and the heirs of the owner could never otherwise anticipate.

Just as every high-net worth individual needs a comprehensive estate plan, so, too, does every business. This is true whether the goal is to continue the company or sell it for the highest possible price. If you are a business owner, then take steps now to complete (or update) and coordinate your personal estate plan with the estate plan for your business.

BOOK A CALL with Ted Vicknair today to find out more about how Louisiana’s unique laws can impact your business estate planning.

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