business succession attorneys in Auburn

Mistakes to Avoid with Business Succession Planning

The freedom that owning a business brings is life-changing, so it is no surprise that business succession planning is a key part of most entrepreneurs’ estate planning. Whether you built your business from the ground up or it was passed down to you, you need to plan early and revisit your documents often to ensure that your hard work carries on to the next generation.

Putting It Off

One of the biggest mistakes people make with succession planning is waiting too long to get started. If you are already retired and your children are all established in their careers, it will be difficult to bring them onboard to run your business. Furthermore, if there are disputes, you may not have enough time to settle them successfully. Discussions regarding your business should happen on an ongoing basis, starting long before you want to retire. This allows your children and business partners to plan accordingly.

Making Assumptions

Business owners are often emotionally tied to their businesses and believe that everyone else in their family has the same level of commitment. This can lead to serious issues when it comes out that one or more beneficiaries have no actual interest in running the business. That’s why it is important to discuss everything frankly and in great detail. If you are planning based on your assumptions regarding your family’s wishes, you may be laying the groundwork for future heartache and difficult conversations.

Failing to Bring Your Children in Early

If your children and/or spouse will be taking over your business, you need to loosen up the reins on your business and allow them to take on an important role in its operation. If you plan on keeping full control of the business until you pass, your family will have to learn how to manage your business overnight. This is the ideal setup for management errors, lapsed payments, and loss in consumer confidence.

While it is difficult to give up control and watch your beneficiaries stumble as they take over business tasks, it is much easier for you to teach them and shorten their learning curve if you begin early.

Forgetting Your Spouse

When people create an estate plan, they often think solely about the next generation. However, if you are married, consider how you want your spouse to be involved in your business and if you want your business to provide for them after you pass away. Again, this comes down to communication.

If your partner has already had an ongoing role in your business, talk to them about what role they want to play if you pass away before them. Do they want to stay in the same position? Do they want to take over the same amount of responsibility you currently have? Or would they rather hand off the management tasks to your children and stay on as a silent partner?

No matter what their preference is, you have to involve them in the decision-making process.

Ignoring Tax Consequences

Owning a business is a major accomplishment and reward, but for those who inherit your life’s work, it can also be a huge financial liability. Estate taxes and other taxes that are due upon transfer of ownership can significantly cut into your estate.

You do not want to leave your loved ones paying your business taxes out of pocket. Discuss your estate plan and business succession plan with an estate planning attorney. They will be able to tell you about the likely tax implications of your plan and help you find ways to minimize the financial losses to your loved ones.

Not Having Enough Liquid Assets

If you have multiple children, recognize that it is likely that one or more children will not want to be involved with the business. Some would rather have the funds from the sale of their portion of the business and leave the work to their siblings. If this is the case, your business will need enough money on hand to buy out those who want to sell their shares.

We’re Here to Help with Your Succession Planning

Wherever you are in your estate plan, it is never too early or too late to bring on an estate planning attorney. Turn to the team at Haygood, Cleveland, Pierce, Thompson & Short to explore your options. Schedule a consultation now by calling us at 334-821-3892 or getting in touch online.

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