When exiting your family business, you will need to choose whether to sell your establishment to an outside buyer or have your family take control. If you decide to keep the business in the family, you have to consider the issues that will effect the success or failure of your plans. There are personality and control issues to take into account, as well as the need for revenue, and family dynamics. In order to have a lucrative transition, you must have open communication, adequate planning, and insight.
Conflicting personal and business needs
The needs and ideals of a business establishment are frequently unlike that of a family. These factors will essentially affect the ongoing and future operation of the business. Individual roles and values will come into play. It can be difficult for the senior owner to consider their family successors as employees. Therefore, it is imperative for the success of your company to separate family issues from that of the business.
One established plan is to develop a family council to develop plans for the business, and family goals as well. A formal exit strategy eases the worry of transferring the business, and it prepares your successors for their new responsibilities. Also, estate planning is necessary for the business and the family, in order to assure that the business revenue go primarily to your children for tax-saving reasons.
Personal identity factors
There are usually identity factors that come about when a business is passed onto family. For example, the holders may question their sense of self when exiting the business. In addition, the heirs could become insecure about their identity once they take control. Personal issues can arise as the successors try hard to prove that they are capable. It may also be difficult for the original owners to have full confidence in their younger, less experienced successors. It is often hard for parents to recognize that their children are now responsible adults.
Will I be able to retain financial security?
Another critical factor to consider when planning a business exit is making sure you have enough finances to retire. Certain retirement plans are specific to business owners. So, if you have not yet considered a retirement strategy, you should establish a plan soon.
A viable retirement plan may be to set up a deferred compensation plan while you are still the owner. This type of retirement plan allows you to defer receiving a portion of your income until you retire or exit the business. Other plans to consider are IRAs, simplified IRAs, simplified pensions plans, and 401(k) plans.
If you are considering retiring now and have not yet developed a plan, a viable option could be to sell your company. If you do decide to have your heirs buy your company, funding arrangements such as private annuities, self-cancelling installment notes (SCINs), and installment sales can offer you income over a period of time. Or, you could choose a lump-sum payout that will afford you money to invest.
Providing income for surviving partner
Another area of concern is providing income for your spouse when you die. You should consider what your spouse will be left with when the company is transferred to your beneficiaries. There are a variety of plans available that use buyout contract or life insurance to ensure a smooth transition. You could choose on a method that will allow your spouse to receive a percentage of the revenue from the sale of the company. However, upon your death, you are typically not allowed to pay a salary to your partner significant other.
How will estate expenses be paid for?
If you die while the company is still under your ownership, there may be a need for finances to pay final expenses and estate taxes. If the business is a incorporated, your successors or estate may be allowed to sell back shares that are equal to your estate taxes and final costs under a Section 302 stock redemption.
It is evident that family business continuation planning is a complex process for all involved. By taking a rational, comprehensive approach, with the coordination of your team of advisors, you will greatly improve your chances for success .
Conflicting personal and business needs
The needs and ideals of a business establishment are frequently unlike that of a family. These factors will essentially affect the ongoing and future operation of the business. Individual roles and values will come into play. It can be difficult for the senior owner to consider their family successors as employees. Therefore, it is imperative for the success of your company to separate family issues from that of the business.
One established plan is to develop a family council to develop plans for the business, and family goals as well. A formal exit strategy eases the worry of transferring the business, and it prepares your successors for their new responsibilities. Also, estate planning is necessary for the business and the family, in order to assure that the business revenue go primarily to your children for tax-saving reasons.
Personal identity factors
There are usually identity factors that come about when a business is passed onto family. For example, the holders may question their sense of self when exiting the business. In addition, the heirs could become insecure about their identity once they take control. Personal issues can arise as the successors try hard to prove that they are capable. It may also be difficult for the original owners to have full confidence in their younger, less experienced successors. It is often hard for parents to recognize that their children are now responsible adults.
Will I be able to retain financial security?
Another critical factor to consider when planning a business exit is making sure you have enough finances to retire. Certain retirement plans are specific to business owners. So, if you have not yet considered a retirement strategy, you should establish a plan soon.
A viable retirement plan may be to set up a deferred compensation plan while you are still the owner. This type of retirement plan allows you to defer receiving a portion of your income until you retire or exit the business. Other plans to consider are IRAs, simplified IRAs, simplified pensions plans, and 401(k) plans.
If you are considering retiring now and have not yet developed a plan, a viable option could be to sell your company. If you do decide to have your heirs buy your company, funding arrangements such as private annuities, self-cancelling installment notes (SCINs), and installment sales can offer you income over a period of time. Or, you could choose a lump-sum payout that will afford you money to invest.
Providing income for surviving partner
Another area of concern is providing income for your spouse when you die. You should consider what your spouse will be left with when the company is transferred to your beneficiaries. There are a variety of plans available that use buyout contract or life insurance to ensure a smooth transition. You could choose on a method that will allow your spouse to receive a percentage of the revenue from the sale of the company. However, upon your death, you are typically not allowed to pay a salary to your partner significant other.
How will estate expenses be paid for?
If you die while the company is still under your ownership, there may be a need for finances to pay final expenses and estate taxes. If the business is a incorporated, your successors or estate may be allowed to sell back shares that are equal to your estate taxes and final costs under a Section 302 stock redemption.
It is evident that family business continuation planning is a complex process for all involved. By taking a rational, comprehensive approach, with the coordination of your team of advisors, you will greatly improve your chances for success .
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