PROTECTING THE BUSINESS
Maintenance.... Making the business survive:
Running the Business
If you started and/or own a family business, chances are that you spend a lot more time thinking about running the business than you do about leaving it. However, having a business transfer strategy in place – whether you plan to retire or are unable to continue is an essential part of estate planning. The business requires a leader during transitions and emergencies.
Consider who is qualified and willing to run the business. Many times family members have less experience or ability than existing employees. There are ways to have non-family members maintain success, rather than allow inexperienced newcomers to take control. Consider your options and ability to share profits and/or equity with existing managers or other professionals.
Profits or Losses
A business cannot exist very long without profits. If there are losses, who will provide funds, and how long will the losses be funded? Who will be able to manage the crisis? Planning is required.
When you select management, realize that control does NOT have to be the same person that has equity or benefits. For example, the manager may get an override or a bonus.
After management has received proper compensation, profits (benefits) are available for inventory, reserves, or distribution to beneficiaries. Make plans for how reserves, balances, losses, expenses, and profits are distributed.
Selling the Business
A business exit strategy usually involves the transfer of ownership interest to other family members or key employees, or the outright sale of the business. As part of your business exit planning, you will need to prepare a list of assets and have the business valued by conducting a professional appraisal or valuation.
You will then need to confer with your estate plan advisor to examine all the potential alternatives available and the legal and tax consequences. Once a business exit plan has been designed, it must be activated carefully following the proper legal and business steps to accomplish your end goals. A backup plan of liquidation must also be considered in case of no sale or the inability to continue.
Having a documented business exit strategy in place ensures that you protect the business you’ve spent years building, as well as a secure future for your heirs.