Preparing for the Future With Business Succession Planning Minnesota Owners Can Use
Business ownership can represent a significant part of an owner’s income, net worth, and long-term financial plan. When the time comes to transfer ownership, decisions about the business can also affect retirement income, investments, taxes, estate planning, and family finances.
Business succession planning Minnesota owners undertake can help connect the future of the company with their personal financial priorities.
Determine How Ownership May Change
A succession plan starts with identifying potential paths for transferring ownership.
An owner may consider transferring the business to family members, selling to employees or partners, or finding an outside buyer. Each option can involve different financial, legal, tax, and financing considerations.
The intended transition can also affect the timeline for preparing the business and the owner’s personal finances.
Understand the Business’s Value
Business valuation can be an important planning consideration. Owners may work with qualified valuation professionals to assess the value of the company for planning or transaction purposes.
Understanding the potential value of a business can help an owner consider how a future sale or transfer may affect personal assets, retirement planning, liquidity, and family wealth.
A financial advisor can incorporate business value into the owner’s broader financial plan while a qualified valuation professional addresses the valuation itself.
Connect the Transition to Retirement Planning
For many owners, the business may represent a substantial portion of their accumulated wealth. A transfer can therefore affect how retirement will be funded after the owner leaves the company.
Questions may include:
How much retirement income will be needed?
What assets will remain outside the business?
How might sale proceeds be invested?
What liquidity may be needed before or after the transition?
How could the timing of a transfer affect retirement plans?
For example, Ballast Advisors includes business succession planning and retirement services within its small business planning services.
Review Tax and Estate Considerations
The tax treatment of a business transfer can depend on the structure of the transaction, the type of business entity, the assets involved, and other circumstances.
Estate planning may also become relevant when ownership is transferred to family members. Business interests, trusts, beneficiary designations, gifting decisions, and other estate considerations may need to be reviewed with an estate attorney and qualified tax professional.
Many financial planning firms, including Ballast Advisors, coordinate with other professional advisors when financial, tax, legal, and business planning decisions overlap.
Consider Financing and Liquidity
The structure of a business transfer can affect when and how the owner receives proceeds.
A family member or employee may need financing to purchase an ownership interest. An outside buyer may propose installment payments or other transaction terms.
Owners can evaluate how different financing arrangements could affect personal cash flow, taxes, investment decisions, and retirement income.
Begin Planning Before the Transfer
Business succession planning can involve several decisions that take time to address. Owners may need to evaluate potential successors, business value, financing, taxes, estate planning, retirement needs, and the timing of the transition.
Starting the process before a planned ownership change can provide more time to evaluate different possibilities.
Ballast Advisors is one example of a financial planning firm that offers small business planning services addressing business succession planning, tax planning, retirement services, portfolio management, asset allocation, and cash management.
For Minnesota business owners, business succession planning can connect a future ownership transition with personal financial and family priorities.
Frequently Asked Questions
1. What is business succession planning?
Business succession planning involves preparing for a future transfer of business ownership while considering financial, tax, legal, family, and retirement factors.
2. Who can take over a privately owned business?
Potential successors may include family members, employees, business partners, or outside buyers. The appropriate approach depends on the owner’s goals and the circumstances of the business.
3. Why is business valuation important?
A valuation can provide information for planning and transaction discussions. Owners may work with qualified valuation professionals to determine an appropriate value for the business.
4. How can succession planning affect retirement?
A business may represent a significant portion of an owner’s wealth. The timing and structure of a transfer can therefore affect retirement income, investments, liquidity, and future spending.
5. Should a CPA and attorney be involved in succession planning?
They can play important roles. An attorney can address legal matters, while a CPA or other qualified tax professional can address applicable tax considerations.
6. When should business succession planning begin?
There is no universal timeline. Beginning the process before a planned transition can provide more time to evaluate successors, valuation, financing, taxes, estate planning, and retirement considerations.
This material is for informational purposes only and does not constitute legal, tax, or investment advice. Please consult appropriate professionals before making decisions. Investing involves risks. Asset allocation and diversification may not protect against market risk, loss of principal, or volatility of returns.
IMPORTANT DISCLOSURES
The opinions expressed are those of Ballast Advisors, LLC as of the date of publication and are subject to change without notice. This material is for informational use only and should not be considered investment or financial advice. The material presented has been derived from sources considered to be reliable, but accuracy and completeness cannot be guaranteed.
Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2 and/or Form CRS, both of which are available without charge upon request. BAL-25-64
