Business Transition Plan
Frequently Asked Questions
Creating a sound business transition strategy requires careful planning and teamwork. By being prepared and knowing when to create a strategy, you'll have confidence that you're the one making the key decisions when it's time to transfer your farm or business operation, and you'll be aware of any potential obstacles. You'll lead your transition team, building and managing your strategy with your team of advisers. Initially, you'll need to know how to find the best specialists for your team and then how to get started on your business transition plan. There may be other areas you'd like to consider when it comes to protecting your business and alternatives related to exiting your business. We can help.
Why do I need a business transition strategy?
After years of building your business, you likely want to maintain control of its transition as it continues into the future. Establishing a customized business transition plan means your business can continue to operate, hopefully seamlessly, during and after the transition to the next ownership generation. An effective business transition plan can help you control and protect the future of your business; share the benefits of your business success with your family, business partners and/or your favorite charity; reduce your estate taxes and other expenses; prevent the forced sale of valuable and treasured assets; and distribute business assets to your children who may be active in the business operation, while maintaining fairness to your other children.
When is the right time to create a strategy?
It's never too early to begin making plans for the future of your business. By starting early, you can be sure you're the one at the wheel, building and managing your transition plan with your own team of advisers. It's a good idea to update your plan often – every two to three years or as business changes take place.
What are some common obstacles encountered in creating a succession strategy?
There's no doubt that when creating a business transition plan, there's a lot at stake. That fact alone can be an obstacle in creating a strategy. Some business owners can become overwhelmed when thinking about the process. Communication can also be an issue. It's important that all involved clearly express their wants and needs regarding the future of the business. The impact of estate taxes and other taxes can also enter the picture when you're creating a strategy. For these reasons, it's wise to work with a team of professional, impartial advisers who can approach the process from a range of perspectives.
If the business is family-owned, one way to avoid an obstacle is to devise a plan that preserves goodwill and fairness among the children, or the next generation. Such a strategy would focus on being equitable, as opposed to being equal, to all involved. Finally, failure to create a plan is likely the biggest obstacle. Without a sound business transition plan, the future success of your business could be compromised.
Why do I need a transition team?
Pulling together a team of advisers to help you create your business transition strategy can give you the confidence and peace of mind that comes from working with people you know and trust. Your goals and desires guide your team in building a plan that is structured to uniquely fit your situation. Your team can help guide you through the choices that lead to a successful business transition plan.
Who should be on my transition team and what are their roles?
You may wish to include a trusted financial adviser; an attorney well-versed in estate-planning laws; an accountant aware of the tax implication of estate planning and business transition; a Farm Bureau insurance agent, who can provide specialized resources and services; and a banker who knows the financial condition of your business.
Where can I find specialists for my team?
You'll want to build the foundation of your team with the people who already know you and your business well. That means looking within your own circle of professional advisers first. The attorney who handles your business affairs will be a key resource for you, as will the insurance agent and accountant and/or banker who have advised you on other business matters. But you may wish to expand your connections to those who are experts in the areas of estate planning laws and tax implications.
How do I get started?
Start by assembling your transition team and gathering the information and resources you'll need for your business transition plan. Think about your goals and expectations, both for the short-term and long-term. A great way to begin is to complete an estate inventory, which details your assets and liabilities and gives you a basis from which to work when sitting down with your transition team. Your team will help you analyze your current business situation and prepare the business for transition, as well as determine who will control your business in the future.
You'll also need to make sure important documents — such as your will, trust, power of attorney and other estate preservation documents — are implemented and updated. Successful business transition requires careful planning and teamwork, so it's wise to work with your team early to get your plan in place now.
What other areas do I need to consider in protecting my business?
Like most companies, you may have one or more employees who play a major role in the success of your business. It may be you — the owner — and/or a business partner or someone with considerable skills or knowledge. The retirement, disability or death of you or another key employee(s) could have a negative effect on the daily operation of your business — as well as its future success. Creating a strategy for business continuation in the event of the loss of a key employee could help provide funds after his/her loss that can assist your business in covering the hiring and training expenses for a replacement employee, as well as the day-to-day expenses of running your business. For additional information about how to protect your business, view our Protecting Your Business brochure.
Are there options for me if I don't plan to transition my business to an heir or next-generation owner, but will instead exit the business?
In addition to a charitable remainder trust and other options, you may want to consider a 1031 Exchange if you do not have a business heir or a next-generation owner. This is a tax-deferred, like-kind exchange of property, with specific stipulations. Your attorney and accountant can help you understand the requirements of a 1031 Exchange. For information from the IRS about 1031 Exchanges, visit the IRS Web site.
How can Farm Bureau help me create a business transition strategy?
We offer a wealth of resources that can help you develop an effective program tailored to fit your personal and business objectives. We can come to the table as one of your trusted advisers, assisting you and your team with your plan's objectives and execution.
For more information about building a business transition plan, find a Farm Bureau agent now.
