According to the Conway Center for Family Business, family businesses account for 64% of the U.S. Gross Domestic Product (GDP), yet 57% of those businesses have no formal succession plan.
Twin Cities Business’s recent article, “Don’t Wait for the Future,” notes that many businesses are founded on a high degree of personal trust and loyalty, often a simple handshake agreement. However, these informal agreements aren’t enough to protect you against disagreements and damaged relationships, which can be costly. A lack of business succession planning can negatively impact business owners, as well as their heirs and employees.
There are two key reasons business owners should think about a business succession structure sooner rather than later. One is taxes. Under the current laws, the estate tax exemption is scheduled to sunset in 2025. This leaves business owners with a small window to take advantage of the planning opportunities around this exemption. Second, the absence of a succession structure may result in business disruption at a very emotional time for owners and employees.
The reason why so many business owners are unprepared is that many of them find it uncomfortable or daunting to discuss succession planning or enacting formal agreements. Others don’t truly see the importance of such discussions. And, in other cases, it can be seen as a sign of disloyalty.
The good news is that partnerships can be strengthened if you address this process the right way, with respect for everyone’s point of view and a willingness to listen. The result will be that you’re totally confident that everyone’s interests are secured. This lets you focus on your business, instead of being distracted by unspoken concerns.
Formal contingency plans help business partners clarify their vision for the future. Many are so busy with personal lives, families, and work that they frequently fail to consider the impact of events outside their control. However, these conversations help us think clearly about what we want in the future and what it will take to get there.
If the process is handled correctly, guided by an experienced attorney, the result should be peace of mind and a higher degree of protection for partners and their families.
Reference: Twin Cities Business (April 10, 2023) “Don’t Wait for the Future”