The year 2010 saw the early members of the baby boomer generation reach age 65. Now, fifteen years later, the youngest members of that generation are reaching the age of 60. In the coming half a decade, baby boomer retirements will reshape the workforce across the country. But this shift will not solely be limited to retirements.
A significant portion of the United States’ largest generation are small business owners, meaning we will see an unprecedented amount of business ownership changes. Those planning to transition out of their business in the near future should consider establishing or updating an existing succession plan.
For small businesses owners, retirement is more than just confirming their retirement account balances and riding o into the sunset. Small business owners have heavily invested in their business with both their time and money. Proper planning for an exit gives the business owner the opportunity to make sure they will be financially secure through retirement.
Additionally, when the legacy of a business is important, it is critical to identify the right individual(s) to take the business into the next chapter when the owner feels they are ready to step away.
For businesses where one or more children are involved in the day-to-day operations, the question of “who should take over” is often the first that comes to mind. It can be even tougher, however, to figure out the best way to transfer ownership to the child(ren). For some families, it makes sense to give an advancement on a child’s inheritance and gift them ownership in the family business. In other situations, the business owner may want to continue to be involved in the business while also having the ability to pursue new activities, so a child may buy more ownership each year as their parent phases out. Another family-friendly sale tool is the installment sale, which can allow a business owner to retire knowing they will have an income stream for the next several years, while also enabling them to spread the income tax resulting from the sale over multiple years.
For exit events where a family successor is not readily identifiable, the options vary from selling the entire business to another business owner, to hiring new management with a plan to sell to them over time, to establishing an employee stock ownership plan.
Most succession plans take time to put in place and carry out, making it important to begin evaluating options early so a business owner can craft a plan that best fits their retirement goals.
If you are interested in setting up a succession plan, please give us a call at 765.423.7900 or send us an email at info@gutweinlaw.com.
