Help Chart the Future of Your Family Business

A recent survey found that 27% of business owners expect to hand off their businesses in the next five years. And even though more than half of the business leaders who plan to retire believe their companies will stay in the family, it has been estimated that only about 36% of American family firms actually are passed on to a second generation.¹

The transition from one generation to the next is considered to be one of the biggest risks to the survival of a family-owned business, so it’s somewhat surprising that 47% of family firms have no formal succession plan.²

A thoughtful succession strategy not only outlines when and how ownership should be transferred but also takes tax implications, family relationships, and other sensitive issues into account.

Management Succession

Think realistically about who is most capable, motivated, and/or prepared to run the business. Because it may take several years to groom a successor, it’s important to identify potential candidates early. If no family members are interested in leading, you may want to consider tapping someone competent from outside the family.

Ownership Succession

Family members who are not willing to take on significant operating roles may still want to retain a stake in the company. How you decide to divide your ownership shares among your heirs and business partners could have a major influence on the future of the company. Involving family members in the process may help promote a smooth transition.

Keep Taxes in Mind

Because tax laws tend to change frequently, it can be critical to stay on top of potential estate tax issues. Trusts, buy-sell agreements, and/or insurance policies may be used to help reduce taxes or provide the funds to help pay them.

It’s a shame that some businesses must be sold either to pay estate taxes or because family members can’t agree on how to move forward. Forming a plan well before you intend to retire could help ease the transition to the next generation.

1–2) PricewaterhouseCoopers, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP, which it awards to individuals who successfully complete initial and ongoing certification requirements.

Gilbert J. Baker, Ann Baker Ronn, and Karin L. Tyson are Registered Representatives. Securities are offered solely through Ameritas Investment Corp (AIC). Member FINRA/SIPC. AIC and The AFP Group and AFP Investment Advisory, Inc. are not affiliated. Additional products and services may be available through The AFP Group or AFP Investment Advisory, Inc. that are not offered through AIC.

In this regard, this communication is strictly intended for individuals residing in the states of California, Colorado, Florida, Georgia, Louisiana, Maryland, New Mexico, Nevada, New York, Ohio, Oregon, Pennsylvania, Texas, Virginia and Washington. No offers may be made or accepted from any residents outside the specific states referenced.

Gilbert J. Baker, Ann Baker Ronn, and Karin L.Tyson are also separately registered as investment advisers under AFP Investment Advisory,Inc. a registered investment adviser, offering advisory services in the state of Texas. As such, these services are strictly intended for individuals residing in Texas.

This is not an offer of securities in any jurisdiction, nor is it specifically directed to a resident of any jurisdiction. As with any security, request a prospectus from your registered representative. Read it carefully before you invest or send money. A Representative from The AFP Group will contact you to provide requested information. Representatives of AIC do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation.

A broker-dealer BD , investment adviser IA , a BD agent, or IA Representative may only transact business in a state if first registered in that state, or is excluded or exempt from registration in that state as a broker-dealer, investment adviser, BD agent or IA Representative, as appropriate. Follow-up, individualized responses to persons in a state by such a firm or individual that involve either affecting or attempting to affect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without first complying with appropriate registration requirements, or an applicable exemption or exclusion.

For Information concerning the license status or disciplinary history of a broker-dealer, investment adviser, BD agent, or IA rep, a consumer should contact his or her state securities law administrator.