Submission by Gary Piercy
Vice President and Senior Relationship Manager, Business Banking
Bank of America Merrill Lynch
Omaha, NE
Responsible retirement planning requires careful consideration of many questions one must answer before being able to take a step back from working.
Is this the right time to retire? Is my nest egg big enough? Will I be able to maintain my standard of living?
For business owners, there is another critical set of questions to answer before bidding farewell to the professional world.
Who will take over my business when I retire? Will it survive when I’m gone? How can I ensure its legacy?
After all the time and effort it takes to build and maintain a successful business, answering these questions should be a top priority. However, a recent Bank of America study showed less than one-third of Baby Boomer business owners has an exit strategy in mind.
Succession planning is about protecting the future of your business and ensuring you have thoughtful, effective strategies in place to help the business continue to realize its value for all stakeholders once you’re no longer at the helm. There are three key factors to an effective succession plan: a capable successor, a detailed transition plan, and an estate plan.
A capable successor
For those planning to have a family member or partner take over, identifying a successor with the right mix of leadership skills and business acumen is paramount to ensuring the future success of the business. Even though 79 percent of business owners want their families to keep the business, only 30 percent of family businesses are successfully passed on to the next generation.
For those who plan to sell a business, identifying a successor isn’t as important. However, they should still maximize the value of their business by exploring a range of potential buyers and offers.
Some may choose to liquidate the business at the end of their careers Those taking this route should be aware it could result in overall financial loss; buyers often attempt to pay less than cost for inventory and equipment.
A detailed plan of transition
A transition plan should include short- and long-term goals, and involve a team of advisors who can facilitate a smooth transition. The ideal group of advisors would be diverse – including professionals such as corporate attorneys and estate lawyers, capable of providing specialized counsel to the business. A personal financial advisor is often chosen as a point person to coordinate the team’s efforts while clarifying the overlap between business finances and family wealth.
An estate plan
Investigating the best ways to help your estate pay estate taxes and other associated costs is an important dimension of succession planning because the liquidity of the business will determine whether it can help to offset estate taxes and other expenses. Gifting wealth, buying life insurance, refinancing business loans or moving liquid assets to new accounts can greatly simplify matters for successors, and optimizing these strategies requires in-depth planning.
Finally, succession planning doesn’t stop once a plan is developed. Business owners must review plans on a regular basis and reevaluate as the business grows, owners’ priorities change, and aspirations for their legacies continue to evolve over time.
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