Succession planning critical for business survival

Succession planning critical for business survival

From financial security to providing for family members, succession planning is an important process for any business owner.

Unfortunately, many entrepreneurs, particularly small, family-owned businesses may not have a plan in place. Of the more than 25% of family-owned businesses expected to change hands in the next five years, nearly half of them do not have a succession plan, according to the U.S. Small Business Association.

Without a succession plan, many businesses will not last beyond the initial owner.

After the owner exits

Small businesses that survive to the next generation 30%
Small businesses that survive to the third generation 12%

Source: U.S. Small Business Association, March 2010. Most recent data available.

A look at U.S. small businesses
There are over 5 million small businesses, excluding sole proprietors, in the United States. The owners of most of them do not participate in a 401(k) plan, resulting in a high concentration of overall net worth tied to their businesses.

The need to plan for the future
A meeting with client business owners may be an opportunity to discuss the importance of succession planning. A succession plan can provide:

  • Financial security in retirement. Many small business owners do not participate in retirement plans, and a succession plan may help them improve their net worth in retirement.
  • Access to assets for family members. In the event of disability or death, a succession plan can provide cash or liquid assets to family members.
  • A more efficient way of transferring wealth and reducing taxes. A succession plan can minimize taxes and transfer wealth more efficiently.
  • Greater current value for the business. A solid plan makes a business more attractive to potential buyers and could result in more favorable financing terms from banks.

Succession planning can add value to your business. More than 99% of firms in the United States are considered small businesses, with fewer than 500 employees. Understanding planning needs specific to small businesses may help you grow your client base. Learn more about succession planning and related strategies.

More in: Estate and Wealth Transfer