Are you approaching retirement age? Has the time come to start thinking about succession planning? Of course, the earlier you start putting together a succession plan, the better. But, if you see yourself calling it a day in the next few years, you really need to get a move on. Putting together a succession plan is a lot more difficult than a lot of people initially realise. The transition period is going to be tough, with many pitfalls to avoid and factors to think about. A lot of the hurdles are going to be financial in nature, which is why it is so important to evaluate your succession plan’s financial implications.
What’s the value of your business?
Let’s begin with one of the most vital economic components of your plan. This is, of course, the value of your business. You are not going to be able to create an effective and thorough succession plan if you do not know the value of your firm on the open market. For this part of the process, expert guidance and assistance are of paramount importance. Why? Well, an objective point of view is worth its weight in gold. In your eyes, your practice is, no doubt, priceless. However, if you are to move forward, you need to set a fair market value.
Once you know the value of your business, the financial implications don’t stop there, unfortunately. One thing that you will need to think about is taxes. Your legacy could be eaten up by estate taxes if you do not plan carefully. Seek guidance to ensure you minimise tax as much as possible. By doing this, you ensure that your firm’s value is maximised for the next generation to come.
There are a number of different tax minimisation strategies you can follow. It all depends on your circumstances and what is going to happen to your business. If you intend to pass your firm on to your children, one option is to freeze the current value of your financial interest in the firm and transfer the ownership to your kids. No matter whether you have a good idea regarding what tax strategy you are going to follow or not, expert advice comes highly recommended. After all, tax minimisation strategies must be implemented correctly, and this will demand some reorganization.
A blueprint for the future
Finally, you also need to make sure that you use the succession plan as your business’ blueprint for future operations. It will give your successor a solid starting point while ensuring you know what to do going forward. Communicating throughout is imperative to make sure squabbles don’t occur along the way.
All in all, there is a lot that needs to be considered when it comes to putting a succession plan together, and a lot of the things that need to be taken into account are related to finances. You simply cannot create an effective succession plan if you do not know the true value of your business at present. Once you know this, you can then begin to put together other aspects of the plan.