Succession planning: What is there to lose? A ranch.

The statistics are frightening around the success of transitioning businesses. Today there are 12 million small businesses in America. Current statistics suggest that 33 percent will survive to the second generation, with only 10 to 15 percent surviving to the third generation. We are blessed with many ranches in the third, fourth and fifth generations in this valley. Unfortunately, the reality of the situation is that these ranches will not sustain for the succeeding generations unless there is an effective succession plan in place.

Ranching and farming generally is a business owned and operated within the family. In addition to the delicate balance of mixing family with business, many also face the harsh reality of having a high asset value contrasting with a low cash flow. This can create a challenging environment for succession planning.

The main areas of concern for a successful succession plan is the relationship between family, the business ownership and its management.

To create and implement a successful succession, I recommend using the expertise of a team of professionals that include a facilitator, an attorney, a CPA, and a CFP. Each play a critical role in the process and it’s important that they all understand the vision of the family, the business and its ownership in order to effectively address the many variables involved with the transition.

The facilitator assists each professional’s role in effectively producing an outcome with a common objective. The financial planning role helps deal with the concerns of premature death, death taxes and the analysis of education and retirement needs. The role of the CPA is essential in order to address the issues around income, capital gains and estate taxes so that the type of cash flow issues surrounding taxes is fully understood. And all of these roles and their components are brought together in legal documents carefully crafted by an attorney.

These issues should be dealt with earlier than later. With current Estate Tax exemption allowing 10MM plus to be transferred to the next generation, ranching prices are lower than they have been and hopefully with income up in the past few years, it is great time to engage with putting your team together to make this a legacy that will work.

If this is an issue that you or someone you know would be interested in learning more about, then consider signing up for the “Leaving a Lasting Legacy” workshop on Feb. 11. Seating will be limited, so reserve your spot by calling 970-879-0825. The cost of this event — which includes lunch — is $25 for the first family member (plus $10 for each additional family member); you’re welcome to come and join us as we explore this discussion much more in depth. The workshop will be held in the Routt County Commissioners Meeting Room, and additional information is available at the Extension Office website at http://www.rcextension.colostate.edu.