Early planning can help achieve personal, philanthropic or family wealth goals.

When it comes to creating a business succession plan, one early step should be determining an answer for the age-old question, “what’s the meaning of life?”

That may seem complicated or cloudy, but evaluating your life goals in retirement should be part of your calculation for how you plan to carry on your business once your working days are over.

"When something has been such a major part of your life for 30 or 40 years or more, it’s important to think about what the new meaning of life becomes once you move on from that business," said Jim Benedict, managing director of PNC Private Bank Hawthorn. “Those goals will help guide your decision-making for succession planning."

Keep or Sell

A primary question to answer when stepping away from an owned business is whether you wish to sell it entirely or keep a stake in it. Benedict said it’s common for business owners to experience remorse in the short term after selling due to a lost sense of purpose. Having a plan for a third act is important.  This could mean staying involved in the business to a lesser extent, or it could mean taking on new challenges outside of the business.

Keeping the business, though, creates a new set of decisions about who will succeed in a leadership role, whether that’s a family member or a trusted employee; what does a limited role look like for you; and how do you transfer the business efficiently financially when you’re ready to limit your stake?

Selling can create a financial windfall but is a big decision in its own right. How will you handle the proceeds of your sale? What do you want to accomplish in retirement; do you have family goals or considerations for generational wealth; are there philanthropic causes that you hope to support?

Your goals in retirement, whether they be personal, philanthropic, or passing along wealth to heirs, will come at a cost. Determining what it costs to achieve those retirement goals and how your business succession plan can work to fund them is key.

"We often say that when it comes to making a succession plan for a family business, the easier part is the math," said Max Barger, wealth strategist and Mid-Atlantic Regional Manager for PNC Private Bank Hawthorn. “The harder part is the life considerations and figuring out how you want the money you’ve worked hard for to help you live the life you want."

Cost of doing nothing 

A key to making your business succession goals a reality is to start planning as early as possible. A succession plan should be part of your family business from its early days. Planning early allows for your plan to be flexible and account for family or business governance concerns, shifting financial goals and future tax implications of the sale or transition of your business. Each plan should contain essential steps:

  • Understand the cost of your lifestyle – Know what part the income and wealth generated by your business plays in paying for your current life and future goals.
  • Perform due diligence – Evaluate honestly any potential problems within your business, so they can be remedied before a sale.
  • Understand value – Consider what drives the most value for your business and document it, so you can monitor and maximize that value over time.
  • Decide early – Evaluate the estate and transfer tax liabilities in your state so you can gift or transfer your business over time in a tax efficient manner.

"Like anything, the earlier you plan for the future of your business, the better because you can save money," Benedict said. “Without a plan, you risk paying the cost of doing nothing, which can mean incredible tax liabilities for you or your heirs."

Succession planning is important to ensure that your business carries on once you no longer wish to be fully involved, but it’s also an important part of achieving your personal retirement goals. Creating a succession plan early in the life of your business can create the flexibility you need to ensure your legacy – and your assets – are passed along according to your desires.

For more information, please contact your PNC Private Bank advisor.

Additional Links : Business Succession Planning: Navigating the Path Forward | PNC Insights