St. Louis Small Business Owners
Family owned and small business remain the backbone of the American economy. About 85 percent of all businesses in this country are either family-owned or family-controlled. Small business comes in all shapes, sizes and colors, representing all sectors of our economy. Family businesses generate an estimated one-half of the U.S. Gross National Product and pay half of all wages earned in this country. Unfortunately, Family businesses tend not to outlive their founders. It is rare that family owned businesses survive to the third generation. Unfortunately, two-thirds of all initial transfers fail when there is a lack of business succession planning. Of the one-third that survives an initial transfer, only one-half will survive a second transfer. It is estimated that by 2040 about $10.4 trillion in family business owner net worth will be transferred. Creating a strong business succession plan is crucial for small business owners.
Why family businesses do not survive
Why such a dismal success rate? The reasons are as varied and unique as the businesses and business owners themselves. Nevertheless, many of the failed transfers can be traced to three causes: people, taxes and cash.
Family business owners and estate planning for the family
The family element in every family business can mean the difference between its success or failure during the transfer process. The retirement, disability or death of the business owner are all common events that can trigger a business transfer.
Tough questions must be asked and answered. Otherwise, a business that took decades to build can be destroyed overnight.
For example, who will run the business after you? Will it be your spouse, one of your children or a non-family member key employee? If your spouse will not run the business, will he or she still be financially dependent on it… or can you make arrangements to ensure they are financially independent of it?
What arrangements have you made for the inheritance of your children who are not active in the business? Have you in-law proofed your estate?
Thinking ahead to the second-generation transfer of your business, what provisions have you made to encourage thrift and industry among your grandchildren?
Business Succession plan is a major piece in your estate plan.
Estate Tax Uncertainity
The only certainty about the federal estate tax is its uncertainty with each change in Congress and the White House. Additionally, some states now impose their own estate taxes, independent of any federal estate taxes.
Accordingly, careful monitoring of the economic, political and legal climate is required. Why? Without proper estate-liquidity planning, your family may have to sell the business just to meet an estate tax cash call.
Sheri is a team player with your CPA and financial advisor. Keeping your Operating Agreement is extremely important and plays a major role in your estate planning.
Coordinating Financial and Estate Plans
If your financial and estate plans are not carefully coordinated, there may not be enough cash to fund your objectives. An appropriately-funded estate plan can meet all of your people-planning objectives and provide liquidity for estate taxes (and business debts). Life insurance, owned in the proper amount, type and manner, may be effectively used to fund such money matters.
Sources
- Forbes: The Facts Of Family Business
- Statistic Brain: Family Owned Business Statistics
- Conway Center for Family Business: Family Business Facts
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