How to help clients make a plan for selling or gifting their small business

A successful shift in ownership requires rigorous succession planning

A small business is intensely personal. This makes deciding how a business will continue after the current owner or founder leaves difficult.

The success of a business after transition from one owner to another owner requires careful planning and preparation. Financial professionals can help guide small-business owners through succession planning to help ensure a seamless business continuation.

Small-business owners and their families rely heavily on their business to provide financial security both before and after retirement. Finding the right buyer when selling to a 3rd party, or retaining family harmony when transferring ownership to family members, are primary goals that require careful planning.

Yet, many small-business owners do not have concrete plans. According to a recent Allianz Life Insurance Company of North America (Allianz Life) study, when asked about facilitating the formal transfer of ownership rights in the business, among current business owners:
have an understanding about the transfer of ownership, but have not put it into writing
have had discussions, but haven’t made a final decision
have a written buy-sell agreement
These small-business owners are in need of professional assistance in creating a definitive succession plan. Without a written plan, small-business owners are vulnerable.

Strategies for succession

In general, most business owners plan to formally transfer ownership of their business by selling it or gifting it to family (58%).

Developing a succession plan for a family-owned business requires consideration of potential family conflicts and emotional issues. The vast majority (77%) of small-business owners who plan to transition to family said they are worried about retaining family harmony and avoiding discord in the process.

Before a client can determine how to go about selling or gifting their small business to family, they should identify what goals they are trying to achieve.

Some goals include

Treating all children equally and avoiding family conflict
Minimizing federal gift and/or
estate taxes
Progressive transition of the business while retaining control
Making it easier for the next generation to purchase the business if need be
Continuing the legacy of the family business

Once the succession plan’s overall goals are identified, then a strategy can be created. Keep in mind that each type of succession plan has its own unique challenges.

Small-business owners who plan to sell to an outside party are worried about finding someone to take over the business. The overwhelming majority (93%) of small-business owners in the study said they are concerned about finding the right buyer.

Regardless of what type of transfer a business owner selects, most are worried about tax implications. Nearly eight in 10 (79%) small-business owners are concerned about federal or state taxes that will be levied at death.

How to use life insurance in business succession planning

Fixed index universal life insurance (FIUL) can be used in various business succession strategies. There are many ways that life insurance can help fund the transfer of a business or provide some level of protection to the parties involved. For example, life insurance may play a key role in funding buy-sell agreements so that all parties involved have sufficient liquid assets to meet their obligations under the agreement.

For more information or ideas about how to help clients incorporate life insurance into business succession planning, view additional resources here.

*Allianz Life conducted an online survey, the Small Business Study, in April and May 2022, with a sample of 516 small- to medium-size business owners.

Fixed index universal life insurance policies require qualification through health and financial underwriting.

Allianz Life Insurance Company of North America does not provide financial planning services.

This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice. Customers are encouraged to consult with their own legal, tax, and financial professionals for specific advice or product recommendations.

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