Business planning can comprise many areas but for purposes of this overview, we’ll be focused on two key areas: Business succession and exit planning & Attracting and retaining key employees.

Succession Planning
At its heart, succession planning is about how to operate, grow and ultimately transfer the business interests. The benefits derived from succession planning are not only ensuring a smooth transition of ownership but also:

• Reducing the probability and the magnitude of the loss of value associated
  with unexpected events.
• Providing a sense of security for all stakeholders involved in the business.
• The potential for tax savings.

Proper succession planning involves these elements:

Family Business Strategies
Often, an objective of family-owned businesses is to extract enough value
from the business for the senior family members to guarantee income
without generating capital gains taxes, while simultaneously transferring
business interests to the younger generations. A couple techniques to
accomplish that are:

• Installment sales to irrevocable grantor trusts — A means by which
  to give the younger generation ownership without simply making
  outright gifts and for the senior generation to obtain value or income
  for some of the assets over time. This is achieved by selling the business
  shares to a trust for a note for a term of years for principal and interest.
  The sale does not create income tax but does provide the shareholder
  income, and the children are the beneficiary of the trust.
• Recapitalizing into various share classes — A way to create
  different share classes with different results. For example, create
  preferred shares that pay out a fixed dividend with no capital
  appreciation, and have a second class of shares, called common shares,
  that all capital appreciation accrues to and which are generally owned
  by junior family members.
  Key Questions to Consider When Selecting a
  Business Succession Strategy:
  If you have an operating or buy-sell agreement in place:
• What triggers the transfer of business interests (e.g., death, disability,
  divorce, bankruptcy, retirement, adding or removing partners)?
• How is a transfer caused by a triggering event to be funded?
• Are any family members or employees slated to become owners
  in the future?
  If there is no operating or buy-sell agreement:
• What is the vision for how to actualize value from the business for
  yourself or your family upon any triggering event?

Attracting and Retaining Key Employees

To meet the goals of both the employee and the business, incentives must align with cash flow while maximizing tax deductions and deferring employee taxation. An effective strategy can offer attractive supplemental retirement income as an alternative to transferring business equity to the employee.

Qualified Plans
(The benefit package meant to include most employees)

These plans enable a deduction and deferral of current taxable salary to save for income in retirement. Defined contribution plans are based on a specified contribution amount, whereas defined benefit plans are based on a targeted benefit in retirement. Amounts contributed to retirement plans may be limited by disparity tests, which ensure plans don’t favor only the highly compensated. This is one of the reasons to use non-qualified plans in tandem with qualified plans for highly compensated employees.

• Defined Contribution Plans (e.g., 401(k))
• Defined Benefit Plans
• Hybrid Plans (e.g., Cash Balance)
  Non-qualified Plans
• (Deferred compensation designed specifically for highly compensated employees)

Similar to qualified plans, non-qualified plans can have vesting schedules and can be structured as either a defined contribution or a defined benefit
plan. Non-qualified plans are generally thought of as supplemental — current or future income that does not meet the standards the IRS has for a qualified plan. These plans can help highly compensated employees
fill the gap between what they need in retirement and what is available through qualified plans.

Uses For Non-Qualified Plans:

• Equity alternative: an alternative to giving direct ownership to employees.
• To replace lost earnings to the business if key employees were to leave and to cover
  costs of replacing them.
• To attract new, high value employees.
  Funded or Non-Funded: Non-qualified plans are liabilities of the corporation, which can be
  funded currently or delayed as a future liability of the corporation without funds currently set
  aside. The purpose of a non-qualified plan generally is to attract and retain employees, and
  funded plans are more attractive to employees versus a non-funded promise of the company.
  Examples of methods for funding such plans are
• Life Insurance: Life insurance is often used as a funding mechanism for bonus plans
  of various types in order for the business to have tax deferral on amounts set aside for
  liabilities created by non-qualified plans. Additionally, life insurance allows employees to
  change investment allocations without causing current taxation to the employer.
• Marketable Securities (mutual funds and fixed income)

As a business owner, you’ve undoubtedly poured countless hours and immeasurable effort into your enterprise. The triumphs and trials of your journey thus far have shaped your business and contributed to its current success. But have you given due thought to what happens when you’re no longer at the helm? Business succession planning is a critical aspect of your overall business strategy that ensures the continuity of your enterprise beyond your leadership.

At its core, business succession planning involves laying a foundation for a smooth transition of your business to a successor—be it a family member, a key employee, or an outside party. A well-crafted plan facilitates a seamless handover, minimizes potential conflicts, safeguards your business’s value, and protects your financial legacy. Here are some techniques and considerations to guide you through this process.

One of the most effective strategies involves Buy-Sell Agreements. This contractual agreement stipulates that the remaining business owner(s) will buy the departing owner’s share in the event of retirement, death, or disability. This mechanism provides stability, ensures continuity, and secures the value of the business for the exiting party.

Another critical technique is Key Person Insurance. In case a key employee’s departure significantly impacts your business, this insurance policy can provide financial compensation. The resultant funds can be used to source and train a competent replacement, thus maintaining business operations with minimal disruption.

Further, consider leveraging Employee Stock Ownership Plans (ESOPs). This strategy enables your employees to acquire a stake in your business. ESOPs are an excellent way to motivate and retain your workforce while facilitating business continuity.

Finally, explore setting up a Family Limited Partnership (FLP) or a Family Limited Liability Company (LLC). These entities allow for business control and wealth to be transferred to succeeding generations while minimizing estate tax liability.

While these techniques provide a starting point, crafting a comprehensive business succession plan demands an understanding of various complex legal, financial, and tax considerations. Moreover, every business is unique and requires a tailor-made approach.

If you’re looking for professional assistance, Shah Total Planning is here to guide you. We offer a comprehensive suite of services encompassing Estate Planning, Financial Planning, and Investment Management. Our experienced team is adept at designing customized succession plans that align with your personal objectives and business goals.

So, if you want to safeguard your business’s future and secure your financial legacy, reach out to us at Shah Total Planning. We’re committed to helping you navigate the complexities of business succession planning.

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Navigating the world of business succession planning can be a challenging task, especially when one does not have a clear roadmap to follow. To help simplify this complex process, we will delve into the essential techniques and factors to consider when developing your business succession plan.

Succession planning is a fundamental yet often overlooked part of any successful business strategy. It’s about future-proofing your business by preparing it for inevitable changes. It’s the process that ensures a seamless transition when the time comes for a change in leadership or ownership.

One of the fundamental techniques in business succession planning is ensuring that you have a Buy-Sell Agreement in place. This legally binding contract outlines the procedure for the ownership transfer, safeguarding your business’s continuity. It outlines the specifics, like who can buy shares, how much they’re worth, and under what circumstances they can be sold. This proactive strategy effectively prevents potential disputes and ensures a smooth transition.

Another key consideration is to develop a sound Exit Strategy. It’s essential to understand that an exit strategy is not about planning for failure; rather, it’s about having a plan in place for various future scenarios. You can’t predict the future, but you can certainly prepare for it. Whether you decide to retire, sell your business, or transfer it to a family member, having a clear exit strategy in place ensures you’re ready when that day comes.

Life insurance is another strategic tool often used in succession planning. It can be a safety net, providing liquidity when needed, such as during unexpected changes in leadership or to pay estate taxes. Life insurance can ensure the business has the financial stability to continue its operations during these critical transitions.

Tax planning is also a crucial part of succession planning. It’s important to understand the tax implications of transferring your business to minimize the tax burden and maximize the value you get from your life’s work.

To optimize this process and ensure all these considerations are met, professional advice is invaluable. Estate planning law firms, financial planning firms, and investment management firms, such as Shah Total Planning, have the necessary expertise to guide you through this critical process.

The landscape of succession planning is constantly evolving, making it essential to stay abreast of the latest trends and best practices. Our experienced team at Shah Total Planning is well-equipped to provide comprehensive advice tailored to your unique business needs.

As experts in Estate Planning, Financial Planning, and Investment Management, we can help you build a succession plan that safeguards your business’s future, providing peace of mind for you and your loved ones.

Make your move today. Reach out to Shah Total Planning for a consultation and let’s start planning your business’s future. Together, we can help you navigate the complexities of succession planning, ensuring a smooth transition and a secure future for your business.

Invest in your future now – contact Shah Total Planning today.

New research from Washington State University highlights that three things are at the top of the priority list for today’s small business owners: protecting against cybersecurity risks, planning for retirement/succession, and attracting new customers.

Over 1100 businesses were involved in the study to determine how companies were coping with the ongoing impact of COVID. There is a broad spectrum of how business owners were impacted by COVID. Some closed up shop entirely, others relied on short-term savings or PPL/EIDL loans to get through, and some grew with rapid scale.

If your company made it through the past two years or is growing quickly now, it’s the perfect time to think about the opportunity with succession planning. Planning for succession is vital for ensuring that you’re adaptable and flexible in the future based on potential risks and challenges.

Most people who own a small business intend to run it for the foreseeable future. Some might assume it will stay in the family but could be caught off guard if loved ones don’t want to stick around and run it. Others might not realize they could develop a company “built to sell” and could benefit from some work done now to set the company up for a future sale.

The truth is that each business owner must have their own answer for the possibilities. One hard and fast answer does not need to be determined now, but instead, you must think ahead about the best way to set yourself or others up to answer these key questions should they arise.

That’s what’s done with business succession planning. If you find yourself struggling with answering these questions or knowing what to think about in the succession process, Shah Total Planning is here to help you. Carve a path for your company’s future today.

Even if the future of your business doesn’t include you or other family members, it’s worth planning for. Working with someone who understands the issues at play in business succession and business valuation is important for protecting the value of your organization. The sooner you can find a financial professional to help you, the better.

There are many components to creating a comprehensive business succession plan, but one that is often overlooked is valuing your ongoing business. If you don’t intend to step down from the company or sell it in the near future, it’s easy to overlook this as a crucial step.

Even if an owner is not contemplating an immediate transfer of a business or a sale, a professional valuation of the business can help to identify potential strengths and weaknesses that could all be incorporated into a business succession plan.

A proper business succession plan means thinking ahead about the future and also the other key people who may need to be involved in your business in order to help this company survive in the future if and when you do decide to depart.

A highly valued business could also generate estate tax ramifications that require advanced estate planning opportunities. Finally, a credible valuation could be vital for attracting key employees or even obtaining a loan.

You can think at a broader level about operations, business planning, marketing, legal and personnel when you have done the necessary legwork to value your business and have documented how this has potential impacts for your business succession plan as well.