Small businesses, family-owned businesses, in particular, have long been the backbone of the American economy, accounting for more than two-thirds of U.S. gross domestic product while making up more than a third of the Fortune 500. As a result, these businesses employ more than half of American workers.
Given how vital these businesses are to the overall economy, it is somewhat surprising most of them are so ill-prepared for the future. A 2015 joint study conducted by tax experts BlumShapiro and Baker Tilly International found that nearly 80 percent of family-owned businesses are not ready for a change in leadership. In fact, the study also found that 73 percent of family business owners admitted that they do not see any reason to hand their business over to a family member. Most would instead entertain sale offers as they contemplate planning for retirement.
In a state like Wyoming, for example, where farming is such a major industry, transferring ownership of a farm to the next generation can be a real challenge. In fact, only about 10 percent of farms and ranches make it the third generation of a family.
If you are nearing retirement and have no idea what to do with your business, you are not alone. It is not too late, and there is help available. Get in touch with an experienced civil litigation attorney as soon as possible.
Key Issues to Consider
Experts agree that there are several questions to consider when planning the future of your business without you around. Some of the most critical ones include:
- Keep it or Sell it? This will probably be the first question you have to answer and one you should be ready for when you visit with a professional. Do you plan to pass your business along to a son or daughter? Do you simply plan to sell it to a third party and just “cash out?” Or are you considering an entirely different arrangement, such as splitting up management and ownership interests entirely? There are obviously pros and cons to all of these approaches, and a trained business litigation attorney can help you sort through all of them.
- What about the Tax Man? The estate tax, often darkly referred to as the death tax, has been responsible for more than a few lost family businesses. Upon your passing, your family is stuck with a tax bill that can range anywhere from 35 percent to 50 percent of the value of the business – and that bill is due within nine months. This can pose a challenge to businesses without a succession plan in place.
- Organize Your Paperwork. There are a number of financial instruments that can help guide the transition of your business to the next generation. Life insurance is the simplest, yet most critical component, which can not only cover normal expenses, but help fund a company’s transition as well. Something else to consider is a buy-sell agreement, which can help establish the ground rules for a transition in the event of the owner’s death.
It is not a pleasant topic, but planning for your company’s continued survival requires asking difficult questions. If you are a small business owner who needs help drafting an estate and/or succession plan, do not go it alone. Get help from a seasoned commercial litigation attorney in Cody. Call the Wyoming office of Burg Simpson at 307-527-7891 or complete our Free Case Evaluation Form Here so we can help.