Here's how to get started on a vital part of a being a business owner.
While a strong majority of small business owners are planning to fund their retirement with the sale of their business, only a fraction of small business owners have a written succession plan, according to a new FPA/CNBC survey.
The report says that 78 percent of small business owners have told their advisers they plan to sell their businesses to fund their retirement, but only 30 percent have written a specific plan. The report is according to 182 members of the Financial Planning Association who advise small business owners.
Also alarming, CNBC points out, is the amount of Baby Boomers nearing retirement, many of whom are small business owners without an exit plan.
“There’s so much at stake that it’s foolish to not start planning,” says Beth Milito, senior executive counsel of NFIB’s Small Business Legal Center. “It’s almost like thinking about your own mortality in a way, which is why people might be hesitant to think about it.”
Milito says that she’s talked with business owners who have been caught off guard. Sometimes that’s because an owner can have an incorrect assumption that their kids or other family members will take over the business. Other unexpected events, like an illness, can affect a successful transition, too. For those reasons, owners not only need to plan and have these important conversations, but they also should seek professional help to ensure that they’re doing it right, Milito says.
“A really under-used professional by a lot of small business owners is their CPA or tax professional,” Milito says. “They can be a wealth of information. Even if they’re not an expert in business transfer or it’s clear that you’re going to need a tax attorney, your CPA can be a good starting point.”
It’s not only fiscally important—both to maximize the sale and minimize tax consequences—but also to ensure an overall smooth transition.
“It has implications on employees, too,” Milito says. “Owners want to make sure they do right by them.”
Milito’s most pressing advice: Don’t wait. “I can’t emphasize how important it is to start thinking about this now,” Milito says.
For more information, the IRS has a guide to closing a business. Also be sure to check out NFIB’s succession planning Webinar from last summer.
