As family-owned businesses change hands in large numbers with the retirement of baby boomer entrepreneurs, business succession planning has never been more important.

A business succession plan outlines how a family-owned business will continue, and it requires the professional expertise of accountants, attorneys, bankers, business brokers, investment bankers, consultants, insurance experts and others.

There are many reasons to develop a business succession plan, but the two most important ones are: making sure your business survives after you leave, and funding your retirement.

Here are six steps for a business succession plan:

1. Start early; the clock is ticking and the world is full of surprises. Failing to plan is planning to fail.

2. Involve the family; this will be a comfort to those in both generations.

3. Realistically assess the family’s human resources in terms of skills and abilities to run the business. If there is not a family member able to take the reins, identify an external successor who is.

4. Get over the idea that everyone in the family should necessarily get an equal share, and remember that ownership and management responsibility can be separated. There is nothing wrong with the notion that everyone can and/or should get an equal share. However, it just may not fit a business owner’s particular circumstances, or it may be impractical to achieve.

5. Train successors and work closely with them. If you, as the owner and seller, depend on income from the company in a salary continuation agreement, consultancy or deferred compensation, you will want to use your experience and expertise to protect your investment.

6. Get professional outside help: attorneys, accountants, financial advisers, bankers and others. Professional specialists in the transfer or liquidation of a business can help ease these important transitions in the life of your company.

As part of developing your business succession plan, you need to consider how the business you built and nurtured can now take care of you in your retirement.

For many people, your business represents your retirement savings, so it is important to think about how best to draw funds from it for retirement, typically through deferred compensation and consulting agreements or selling the business. Compensation is generally subject to ordinary income tax rates as high as 35 percent, far higher than the 15 percent rate on long-term gains from sale proceeds.

How these tax issues play out depends on factors such as whether your business is an S corporation, a C corporation and/or a limited liability corporation. But reducing the value of your business will generally reduce the value of your estate and therefore the taxes on it.

For example, you’re Jack and Judy West, co-owners of East Widgets. Each of you can give tax-free gifts, within limits, to your heirs, heirs’ spouses and their children. This can remove significant value from an estate — and remember, the estate includes the value of East Widgets.

If you wanted to sell East Widgets within your family, you can also reduce its value through discounts that compensate for lack of marketability, minority interest or lack of control; you can achieve this by dividing stock ownership.

You can also reduce the value of East Widgets through nonqualified deferred compensation to yourselves; leasing assets such as real estate or equipment (which increase productivity as well as operating expenses); indemnification fees; licensing and royalty fees (for intellectual property such as patents or copyrights); and Subchapter S dividends.

Whether the asset is sold or gifted within the family, the transfer freezes the value of that asset in an estate, although the note usually requires or accrues interest.

In a sale, only the note or proceeds remain in the estate, plus interest paid or accrued. In a gift, the exclusion amount utilized in the gift is later credited against the exclusion otherwise available at death. With some exceptions, appreciation of the transferred stock will affect the heirs’ estates.

For example, if $1 million worth of transferred stock grows to $2 million, the appreciation of $1 million will never enter the donor’s estate. At a 50 percent estate tax rate, savings on this amount would be $500,000.

Consider developing a comprehensive business succession plan today to keep your family-owned business in your family and your retirement dreams alive tomorrow.

Chip Kelley is the senior vice president and manager of commercial banking at KeyBank in Maine. He can be reached at 874-7045 or by e-mail at Raymond_T_Kelley@KeyBank.com.