10-15 Years Until Retirement and No Exit in Sight
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34 GEARS April 2007 Y Y our business isn’t just your pride and joy but a major source of income for you, your family, and your employees. While the business is a large part of your life today, the reality is that someday you may want to retire, step back from the business to concentrate on new ven- tures, or you could become disabled or unexpectedly pass away. What would happen to your busi- ness if you were no longer around to run it? Putting an effective succession plan into place allows you to take the guesswork out of transferring owner- ship, and provides peace of mind that your business, and your family, is taken care of. If you’re like most business own- ers, you may plan to pass your business on to your family or sell it to co-own- ers. In a 2000 study by the US Small Business Administration, however, it found that only 30% of businesses suc- cessfully pass to the second generation. A major reason for this is the tax costs of passing on ownership. What constitutes an effective suc- cession plan depends on your particular objectives. Every plan begins with you deciding how you want to transfer your business. Based on those objectives, there are many strategies that will help you assure a smooth and complete tran- sition of your business to new manage- ment and will control the tax burden for the new owners. Business continuation planning simply means planning for the transfer of business ownership and management from the current owner to someone else. There are a number of good rea- sons why owners should plan for the transfer of their businesses, such as preventing their business from passing to underqualified owners, protecting key employees, or raising cash. But most of the time the planning is done simply to keep the dream alive — to make sure the business extends beyond the owner’s lifetime. Few busi- ness owners work for a lifetime only to consciously decide to let their business dissolve when they’re no longer able to manage it. Every business owner should con- sider having a buy-sell agreement to assure the continuation of the business and to protect the owner and his or her family. But owners frequently don’t know what they want to do, nor do they understand the various options open to them. Buy-sell agreements work no matter what form a business takes: sole proprietorship, partnership, LLC, C-corporation or S-corporation. Beyond taking that all-important first step and getting the agreement set up, having the dollars available to make the transfer happen is also key. Generally, the most convenient and least expensive method of funding the buy-sell agreement is through life insurance. Buy-sell agreements funded with life insurance offer these benefits: 1. Help establish a value for the business 2. Provide liquidity to support the family 3. Prevent family involvement when the owner wants control to transfer to business associates 10-15 Years 10-15 Years Till Retirement and Till Retirement and No Exit in Sight No Exit in Sight by David Eckerdt Princor Financial Services Corporation A 2000 study by the US Small Business Administration found that only 30% of businesses successfully pass to the second generation.
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10-15 Years Until Retirement and No Exit in Sight
Transcript of 10-15 Years Until Retirement and No Exit in Sight
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34 GEARS April 2007
YYour business isnt just your pride and joy but a major source of income for you, your family, and your employees. While the business is a large part of your life today, the reality is that someday you may want to retire, step back from the business to concentrate on new ven-tures, or you could become disabled or unexpectedly pass away.
What would happen to your busi-ness if you were no longer around to run it? Putting an effective succession plan into place allows you to take the guesswork out of transferring owner-ship, and provides peace of mind that your business, and your family, is taken care of.
If youre like most business own-ers, you may plan to pass your business on to your family or sell it to co-own-ers. In a 2000 study by the US Small Business Administration, however, it found that only 30% of businesses suc-cessfully pass to the second generation. A major reason for this is the tax costs of passing on ownership.
What constitutes an effective suc-cession plan depends on your particular objectives. Every plan begins with you deciding how you want to transfer your business. Based on those objectives, there are many strategies that will help you assure a smooth and complete tran-sition of your business to new manage-ment and will control the tax burden for the new owners.
Business continuation planningsimply means planning for the transfer of business ownership and management from the current owner to someone
else. There are a number of good rea-sons why owners should plan for the transfer of their businesses, such as preventing their business from passing to underqualified owners, protecting key employees, or raising cash.
But most of the time the planning is done simply to keep the dream alive to make sure the business extends beyond the owners lifetime. Few busi-ness owners work for a lifetime only to consciously decide to let their business dissolve when theyre no longer able to manage it.
Every business owner should con-sider having a buy-sell agreement to assure the continuation of the business and to protect the owner and his or her family. But owners frequently dont know what they want to do, nor do they understand the various options open to them. Buy-sell agreements work no matter what form a business takes: sole proprietorship, partnership, LLC, C-corporation or S-corporation.
Beyond taking that all-important first step and getting the agreement set up, having the dollars available to make the transfer happen is also key. Generally, the most convenient and least expensive method of funding the buy-sell agreement is through life insurance. Buy-sell agreements funded with life insurance offer these benefits:
1. Help establish a value for the business
2. Provide liquidity to support the family
3. Prevent family involvement when the owner wants control to transfer to business associates
10-15 Years 10-15 Years Till Retirement and Till Retirement and
No Exit in SightNo Exit in Sightby David Eckerdt
Princor Financial Services Corporation
A 2000 study by the US Small Business
Administration found that only 30% of
businesses successfully pass to the second
generation.
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GEARS April 2007 35
Clearly, a buy-sell agreement best protects owners and families if arrange-ments are made prior to death or dis-ability. And funding the buy-sell agree-ment so the dollars are there when needed is essential. There are a myriad of disability and life insurance solutions for this problem.
Its never too early to plan for the continuation of your business. To get started, ask yourself some general questions:
Why do you want to plan for business continuation, and what do you want to accom-plish?
When and how do you want to transfer your business?
Who are possible candidates to own your business?
What do you consider an acceptable value for your busi-ness?
What problems could arise in the continuation process?
Who is available to help you?
First and foremost, assess your business continuation situation care-fully so your plan accomplishes your goals. A buy-sell agreement funded with life and disability insurance may offer some answers to keep the dream alive!
It will take all your financial pro-fessionals working together to build a business continuation plan that will help accomplish your objectives, is flexible, properly funded, and cost effective. Without a succession plan, the effect on your heirs, your estate and your busi-ness could be devastating. For more information about business continua-tion planning, contact your insurance representative.
Ready to Shift to a Better
Insurance Program?
Get into Gear with Heffernan Insurance Brokers.
Offering property, liability, workers comp and more for your transmission business.
Contact us todayBrant Watson800.234.6787
www.heffgroup.comLicense #0564249
ATRA program facilitated by
Heffernan Insurance Brokers and Brant Watson.
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intend-ed to provide general information about the subject matter covered and is provided with the understanding that David Eckerdt is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters per-taining to legal, tax, or accounting obligations and requirements.
David Eckerdt is a financial representative of Principal Life Insurance Company and a reg-istered representative of Princor Financial Services Corporation.
What constitutes an effective succession plan depends on your particular
objectives. Every plan begins with you deciding how you want to
transfer your business.
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