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June 11, 2018

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V O L . X X I V N O. X I I J U N E 1 1 , 2 0 1 8 32 S M A L L B U S I N E S S F O C U S H OW TO B Y S T E R L I N G K O Z L O W S K I E ighty percent of Maine's busi- nesses are family-owned. When asked who will take over the fam- ily business when the current owner retires, 88% of owners believe their children or family members will suc- ceed them. However, according to e Family Firm Institute, two-thirds of family businesses fail to transition to the second generation and only 12% make it to the third. e primary reason for these surprising statistics is a lack of fam- ily business succession planning. While 96% of owners agree a plan is important, only 13% surveyed actu- ally have one that is current and in writing. Such planning is understand- ably challenging, especially when family dynamics and emotions are involved, and topics like aging, death and fi nancial aff airs can be diffi cult to discuss. But if you want to pass your business on to family when you retire, it is critical to have a realistic plan in place to do it. Plan now for later e key to successful succession planning is to start the conversation with successors early — and to think about it both in terms of what the business will need for ongoing stabil- ity and growth, and your personal needs as you transition out of the company. is conversation creates the framework to allow you to begin to separate your personal fi nancial needs from the needs of the business. With this framework as a basis, the exit strategy begins to crystallize, and it is often easier to make other deci- sions down the road. For the transfer of business ownership and control from parent to child to be deemed "successful," there are three components that should be in place: 1. Strategic vision While many parents hope their children will take over the family business someday, sometimes the next generation is not necessarily on board. A successful transition plan begins with a shared vision for the company that takes into account the point of view of all family members. Questions to guide the discussion include: ¡ Is continued family owner- ship desired, or is sale to a third party the best option for all shareholders? ¡ Who will manage the business going forward? What management and leadership skills do they need, and how will they acquire them? ¡ If there will be non-active owners in the business, what is their role in decision-making, and how will assets be equitably distributed? ¡ What do you as the current owner need to successfully retire from the business, and will you have a role going forward? e goal is to reach a consen- sus about the future of the business that incorporates each individual's aspirations. 2. Continuity plan While succession planning for down the road is important, the smart busi- ness owner also puts plans in place to preserve and protect the business in the event of sudden, unexpected situations. If you were to die sud- denly or become incapacitated, would your successors have the resources they need to run the business without you? Is there a buy-sell agreement in place that provides for a reasonable valuation for the business if it were to be sold? Key to this plan is a realis- tic determination of both short- and long-term needs of the business. 3. Tax-effi cient wealth transition Critical to family succession planning is determining how to transfer own- ership in the most tax-effi cient way. ere are asset transfer tax strategies to help you do this, such as freezing the value of your interest in the com- pany while you transfer ownership to your children. It is important to work with a team of trusted professionals, including your lawyer, accountant, banker and wealth advisor, to help you and your family structure a transition plan that is best for all of you and the future of your business. S K, president of Ke yBank's Maine market, can be reached at . @ . Plan for succession of a family business Frequent heating system repairs last winter? Consider an upgrade. Find out more about instant discounts on natural gas, oil, and propane heating systems at efficiencymaine.com 866-376-2463 Invest in high-efficiency heating systems and controls with help from Efficiency Maine

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