Can you lead your business forever?

If you own a business, you probably fall into one of three camps concerning ownership transition:

1. You want to maintain current involvement and ownership.
2. You want to maintain ownership but reduce involvement in your business over time.
3. You want to change or reduce ownership in your business.

Even if you are not in Camp No. 3 yet, you might be in the future. The most likely scenario for a successful business owner is that he or she will live a natural life span, and at some point want to redefine the relationship with the business, to retire, or enjoy other interests.

It might be time to start thinking ahead.

A living transition plan

Giving up or reducing ownership of your business requires a living transition plan, which addresses transition of the business to its next owner. This may or may not include a succession plan, depending on the type of transition desired.

Creating a living transition plan requires coordination of an intimidating matrix of personal, financial, family, tax and legal issues. One of the most difficult aspects of business transition planning is addressing the emotional issues generated by significant change. Business owners often must ask themselves such questions as:

• How do I want the business transition to impact my lifestyle?
• Do I want to give up control of my business?
• If so, how much control, when, and to whom?
• What do I need financially from the business to meet my long-term objectives?
• How will my family, other shareholders and/or my employees be affected by my departure?

Long-term planning for a living transition: The process

When you have the desire to change or reduce ownership, you will need to consider the following questions:
Family questions:

• How do I treat all family members equitably?
• Do I want to gift all or part of the business to my family?
• Do I want to sell the business to certain family members?

Key employee questions:

• Can the business support the transition?
• Can I afford the risk of an internal buyout?
• How can employees finance a down payment?

Outside parties questions:

• What is the best structure?
• Should I integrate the sale into an estate plan?
• How can I maximize my tax results?

Contingency plan

Once the living transition plan is designed, a contingency plan should be developed consistent with the objectives of the transition plan.