Strategies for Successful Succession Planning illustrates the importance of planning for the succession of a business and why the “tax tail doesn’t always wag the dog” in these decisions. There is a tremendous balancing that takes place for the business owner between family members and existing management and who best should lead. A business succession conversation generally begins as part of any estate planning discussion with a business owner. These discussions usually focus on the desire for transitioning the business, but they aren’t sure how to do so or to whom. We’ve discovered that taxes are a consideration in this process, but are often outweighed by many non-tax considerations. For example, is a business owner better off passing management of the business to children or to non-family members? Who should voting control be vested in? How can children who are active in the business effectively succeed to the business without alienating the non-active children? Does life insurance play a role in the equalization of those children who may not have received any business interests? How can the owner and spouse continue their lifestyle if they give away the business?
Business owners want to plan for the transfer of knowledge, skills, labor, management, control, and ownership of the family business in a manner that not only minimizes taxes, but maximizes their vision so that the business doesn’t become another statistic. Business succession planning can best be described by quoting Jimi Hendrix: Life is pleasant. Death is peaceful. It’s the Transition that’s troublesome.” Notwithstanding the previous quote however, once a business owner spends the time and understands the options available and deals with the dynamics, the planning process isn’t so daunting and actually may lead to greater insight.