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A 2000 study by the our business isnt just your else. There are a number of good rea-
pride and joy but a major sons why owners should plan for the
US Small Business source of income for you, your transfer of their businesses, such as
Administration found family, and your employees. While preventing their business from passing
the business is a large part of your life to underqualified owners, protecting
that only 30% of today, the reality is that someday you key employees, or raising cash.
may want to retire, step back from the But most of the time the planning
businesses successfully business to concentrate on new ven- is done simply to keep the dream alive
pass to the second tures, or you could become disabled or to make sure the business extends
unexpectedly pass away. beyond the owners lifetime. Few busi-
generation. What would happen to your busi- ness owners work for a lifetime only to
ness if you were no longer around to consciously decide to let their business
run it? Putting an effective succession dissolve when theyre no longer able to
plan into place allows you to take the manage it.
guesswork out of transferring owner- Every business owner should con-
ship, and provides peace of mind that sider having a buy-sell agreement to
your business, and your family, is taken assure the continuation of the business
care of. and to protect the owner and his or her
If youre like most business own- family. But owners frequently dont
ers, you may plan to pass your business know what they want to do, nor do they
on to your family or sell it to co-own- understand the various options open
ers. In a 2000 study by the US Small to them. Buy-sell agreements work
Business Administration, however, it no matter what form a business takes:
found that only 30% of businesses suc- sole proprietorship, partnership, LLC,
cessfully pass to the second generation. C-corporation or S-corporation.
A major reason for this is the tax costs Beyond taking that all-important
of passing on ownership. first step and getting the agreement
What constitutes an effective suc- set up, having the dollars available
cession plan depends on your particular to make the transfer happen is also
objectives. Every plan begins with you key. Generally, the most convenient
deciding how you want to transfer your and least expensive method of funding
business. Based on those objectives, the buy-sell agreement is through life
there are many strategies that will help insurance. Buy-sell agreements funded
you assure a smooth and complete tran- with life insurance offer these benefits:
sition of your business to new manage- 1. Help establish a value for the
ment and will control the tax burden for business
the new owners. 2. Provide liquidity to support the
Business continuation planning family
simply means planning for the transfer 3. Prevent family involvement
of business ownership and management when the owner wants control to
from the current owner to someone transfer to business associates