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FAMILY BUSINESS PLANNING

All too often, we see the following scenarios amongst our clients who have businesses:

SCENARIO #1. A family owned business is run by a parent or parents.  The business has good cash flow and cash value, but the owners/parents have made no plans for what happens at the business in an emergency situation.  One or both parents become ill, or die.  With no leadership, the business cannot continue to operate beyond one or two months.  The family desperately looks for a buyer, tries to get out of the lease and other contractual obligations, and/or is forced to close its doors.  Best case scenario - a buyer is found, and the family can "sell" the business, but all they get for a lifetime of their parents' work is pennies on the dollar. 

SCENARIO #2. 
A family owned business is run by parent/s and one of their children.  The business has good cash flow and cash value, but the owners/parents have made no plans for what happens at the business in an emergency situation.  One or both parents become ill, or die.  Luckily, their child is able to continue to operate the business, and does so - quite successfully.  The other children - who are not involved in the business - want their share of their parents' estate, and rightfully so, since their parents' estate plan said to split the assets "equally."  The children can't agree on a fair division;  some want to sell the business and split the proceeds, while others want to keep it in the family.  Years of litigation between the siblings ensues.

SCENARIO #3.  A family owned business is run by a parent or parents.  The business has good cash flow and cash value, but the owners/parents have made no plans for what happens at the business in an emergency situation.  One or both parents become ill, or die.  A key employee sees the writing on the wall - with no leadership, the business cannot continue to operate beyond one or two months.  While the family desperately looks for a buyer, tries to get out of the lease and other contractual obligations, and/or is forced to close its doors, the employee opens an office across the street and takes the clients with them.  The business "survives" - but the family gets no benefit from the lifetime of labor their parents put in.

These are just some of the actual scenarios we have seen repeating over and over and over.... And every single one was completely avoidable: 

Scenario 4.  
A family owned business is run by a parent or parents.  The business has good cash flow and cash value, but the owners/parents have made a plan for what happens at the business in an emergency situation.  One or both parents become ill, or die.  The business continues to operate or is sold immediately exactly as the owners planned.  The family retains the business, or sells it for its full and actual value.


All of us have a choice.  No one would choose scenario 1, 2, or 3 for their family business, but if you DON'T MAKE A PLAN THAT CHOOSES SCENARIO 4, what are the chances that your family business will ultimately benefit your family?  Let us help you plan your exit strategy.



If you are like most of us, you look forward to the day you can retire, perhaps turn your business over to a son or daughter, or sell it.  You didn't work 12 hour days in order to see your business fail or go to strangers.  But no matter what you are planning, or even if you are not planning to EVER stop working, you must absolutely MAKE A PLAN TODAY, for the day you cannot run your business due to unforeseen illness or death. 

Most business owners do not take the time to plan for how they will leave their business. They are busy running the company, or they don't know where to start. But if you own a business at your death, it will be included in your estate and could be subject to all of the scenarios above PLUS substantial  taxes. Your family could be forced to sell the business or its assets at 'fire sale' prices. Then you will have worked hard all these years so strangers and Uncle Sam - not your family - will reap the benefits.

Planning for how you will exit from your business should be an integral part of your estate and retirement planning. Proper planning now can provide you with retirement income, reduced income and estate taxes, and even let you benefit a charity if you so choose, regardless of whether you transfer your business to family members at discounted values, to employees, or to an outside buyer. In today's market, the economy and trends are affecting the timing and value of business transfers.

Planning now to exit your company will result in you and your family receiving the best possible results, both now and after your retirement, disability or death. You can receive retirement income; you can transfer your business to your family, your employees or an outside buyer; you can make a difference for a charity or your community; and you can do all of this with reduced income, gift and estate taxes.