Your business isn’t just a means to an end — it’s your livelihood, passion, and legacy. This is why it’s vital to have a succession plan in place that will ensure your wishes are honored in the future when you have passed the operations on to your loved ones or new leadership. A solid business succession plan can ensure continuity, minimize disruptions, and enhance the value of your company. Critically, a tax professional can play an essential role in business succession planning and optimize financial outcomes.

Start Planning Early

This is the most important one by far. You shouldn’t wait until retirement to create a business succession plan — it should be an ongoing process that begins years in advance. Be sure to review the plan on a regular basis, or after any significant changes in leadership, business structure, or strategy have taken place. Planning early also allows you to:

• Identify key roles in the company
• Provide training and mentorship opportunities
• Transfer knowledge to successors
• Minimize the negative impact of leadership departures
• Boost employee morale and performance

Notably, by involving a tax professional in the early stages of planning, you can ensure a more tax-efficient transition. They can evaluate the tax implications of different succession options and recommend effective strategies to minimize your liabilities. In addition, starting early gives you time to get the books in order, complete, and accurate, which will make the due diligence process go smoother.

Optimize Your Tax Strategy

A tax professional can identify strategies to optimize your returns — and reduce the impact of income, gift, and estate taxes when it comes to transferring ownership of your business. For instance, they can advise you regarding gifting shares, using the Qualified Small Business Stock exemptions, Employee Stock Ownership Plans, and installment shares to spread the taxable gain over a period of years.

Obtain an Accurate Business Valuation

An accurate business valuation is crucial to a smooth transition. By determining the company’s worth, you can minimize potential estate tax liabilities when you pass ownership on to the next generation or set an estimated value, which helps when negotiating with a new buyer. It also allows strategic planning if you intend to transfer shares during your lifetime — and ensures a fair distribution of business assets among multiple family members after your passing.

Formalize the Succession Plan in Writing

It isn’t enough to simply discuss your plans for the future of your company with your family. A business succession plan should be formalized in writing.

Not only should you have a succession plan in place for your retirement or when you pass away — a contingency plan for the unexpected can keep your company’s operations stable in the event of an emergency.

Involve an Experienced Tax Professional

When you begin the process of business succession planning, it’s best to have a tax professional by your side. They can help you review the financial health of your company, evaluate your options, and structure the transition for the most beneficial tax treatment. By gaining an understanding of your operations and objectives, a tax advisor can also make recommendations that will maximize your current cash flow, mitigate risk, and contribute to the longevity of your business.

Contact Rolleri & Sheppard CPAs, LLP

If you own a small business, a tax professional can help you structure a tax-efficient business succession plan that satisfies your goals for the future of your company. Based in Fairfield, Connecticut, Rolleri & Sheppard CPAs, LLP provides individuals and business owners with a wide range of tax services. Contact us online or call (203) 259-CPAS to schedule a consultation.