Wealth Transition and Succession Planning for Businesses During COVID

Wealth Transition and Succession Planning for Businesses During COVID


  • Learn how the COVID-19 pandemic is affecting business valuations.
  • Find out how to benefit from low small business valuations.
  • Learn about mitigating risks during the COVID-19 crisis with wealth transition and succession planning in mind.
  • Find out more things to consider regarding wealth transition and succession planning in the era of COVID-19.

Regardless of the type of business you’re running, you’ve likely already felt the impacts of the ongoing COVID-19 pandemic. With no end to the situation in sight, many have begun to try to settle into this “new normal.” They’re resuming their regular activities (at least as much as possible) and trying to continue along the path they set for their organizations at the beginning of the year.

This, of course, presents its own fair share of challenges. Once your doors have opened again, you may think about other important events. You may need to consider valuations and appraisals, risk assessments, and succession planning.

Thanks in no small part to COVID-19, many private enterprises and family-owned businesses are rethinking their ideas about wealth transition and succession planning. An unprecedented transfer of wealth–roughly $68 trillion–is set to be passed down by Baby Boomers over the next ten years. So, it’s clear that these issues must be assessed sooner rather than later, and Fiducial can help.

Business valuations in a COVID world

One of the more unfortunate impacts of COVID-19 involves a decrease in small business values across the board. The fact that both actual and expected revenues and earnings have likely decreased for many organizations, coupled with an increase in interest-bearing debt and liquidity issues in the market at large, all have a lot to do with this issue.

At the same time, it is possible to mitigate that risk by keeping a few key things in mind. First and foremost, focus your attention on cash flows, the cost of capital, and growth as much as possible. One of the most critical considerations for a proper business valuation in these times involves figuring out what, exactly, a recovery from COVID-19 will look like for your organization.

Obviously, certain industries have bounced back faster than others. Likewise, there are certain things that we just cannot know right now. For instance, consider the time-frame for vaccine availability and what effect that will have on the world. However, you can focus on a few areas to make better determinations about projected cash flow and other growth-related factors. Think about things like whether you will experience a full or partial recovery, and how long that impact will last.

On the plus side, all of this represents a unique opportunity for many people to take advantage of low small business valuations. Lower business valuations may minimize things like estate and gift taxes. They also allow business owners to transfer a greater portion of business assets and reduce your taxable estate. So, from that perspective, you’ll be able to gift assets against your lifetime exemption that would have previously been considered a taxable event had COVID-19 not occurred at all.

Fiducial can help you with wealth transition and succession planning in the time of COVID-19.

Mitigating risk and protecting your legacy with wealth transition and succession planning

In general, you need to remember what the major goals of wealth transition and succession planning actually are: you’re attempting to preserve as much of your wealth AND your business as possible. Yes, it’s about making a plan that you can follow over time. However, it’s also about being flexible enough to evolve that plan as conditions can (and likely will) change.

Case in point: COVID-19’s impact on the supply chain. Even if your small business isn’t being directly impacted right now to the same degree as others, the same might not be true of your supply chain partners or even your largest customers. These could absolutely have a considerable impact on your own operations. Is your organization particularly vulnerable to these types of issues? Then, you need to think about ways to mitigate them quickly.

Likewise, you may be one of the lucky few businesses that wasn’t actually negatively impacted by COVID-19. Some industries are absolutely thriving right now. Consider manufacturers of personal safety gear and even a lot of food and beverage manufacturers, to name a few.

If all of this describes your situation, it’s likely that you’ve seen a short-term increase in sales and, in all likelihood, profitability. How will this impact the future of your organization? Is this what the “new normal” looks like for you? Will you eventually return to pre-COVID levels in terms of sales and profitability? Do you have a way to determine this right now, or is time going to have to tell the story?

These are all critical questions that you need to try to answer to make the best possible decisions in terms of succession planning.

Things to consider

In the end, understand that wealth transition and succession planning were always complicated processes. However, COVID-19 has not done anyone any favors. No matter what, you need to recognize that this is an inherently specific process. So much is impacted by your own unique circumstances and the facts surrounding your organization. Likewise, your end goals will play an important role in the decisions you make, along with how they may have changed in the last few months.

However, if you’re able to keep these core best practices in mind and look at things through this new pandemic lens, you’ll be able to create the right plan for your objectives with as few of the potential downsides as possible.

Need help with succession planning and wealth transition for your business? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!

For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.