It takes dedication, innovation and a little luck—or perhaps a lot of luck—to turn a vision into a successful business. This might be your life story or the story of someone you are close to. But what will happen to the small business when the owner is no longer able to chart the course?

According to a recent article in the Boston Globe, more than eight out of ten family-run businesses do not have a succession plan in place. And that could be a recipe for future failure.

Essentially, such a plan is a road map for heirs and business associates to follow in the event of death, disability or retirement. It may include provisions to distribute stock and other assets, acquire or amend life and disability insurance policies, arrange buy-sell agreements, divide responsibilities among successors and tie up any other loose ends. The plan can also establish the value of the business for various purposes.

Where do you start? First, the owner must clearly establish his or her objectives and define the financial circumstances. Next, several critical questions must be answered, such as whether the owner intends to retain some level of control in retirement, whether there is a capable successor within the ranks and if there are sufficient assets to pay any estate tax, distribute assets and still keep the business running. This also requires some frank and honest discussions with co-owners or partners, family members and key employees and stakeholders.

Following are several other points to consider:

  • Business, family and health situations are ever-changing, so make the plan relatively easy to modify.
  • It is important to designate the best person (or people) to take over the This can be a difficult process if there are several viable candidates among the children, siblings or business associates. Similarly, dividing up business assets in an equitable fashion can be a challenge if you hope to preserve family harmony.
  • Develop a basic understanding of the prevailing federal and state estate tax laws. On the federal level, the tax law currently provides a generous $10 million estate tax exemption (indexed to $11.4 million 2019) with a top tax rate of 40%. Thus, most small business owners can shield their estates from federal tax, but there may be other consequences on the state level.
  • Be aware of gift tax benefits. Under the annual gift tax exclusion, a donor can gift up to $15,000 per year to each recipient ($30,000 for joint gifts by a married couple). The exclusion is allowed in addition to the lifetime gift tax exclusion (which is unified with federal estate tax exemption).
  • Consider establishing the fair market value (FMV) of your company. The FMV is usually defined as the amount that a buyer would be willing to pay under the usual circumstances. It can be incorporated in a buy-sell agreement that will keep the business afloat in the event of a sudden death or disability.

Final words: Creating a succession plan is generally not a do-it-yourself proposition. Seek guidance from your JMF professional advisers.