Tax, estate, and financial planning for business owners requires a rare combination of talent and experience. There are many issues facing an entrepreneur who wants to create a plan for the business. Mistakes and/or omissions can cost you thousands, even millions of dollars. Plus, it is satisfying to sew things up neatly and have a plan for the future that harmonizes your business, family, and personal goals and objectives.
If you are like most business owners, you rely on the income from your business to support your lifestyle and that of your family. Because you have put so much back into the company, chances are that the business also represents the majority of your net worth. It is essential that you have a plan to preserve the value of the business if you were to become disabled, die prematurely, or are otherwise unable to work.
When you have a logical buyer (co-owner, minority shareholder, or even a competitor), a properly designed buy-sell arrangement is a powerful way to ensure business continuity, plan for retirement, and accomplish your estate planning goals. It is essential that you have expert guidance that considers the tax, estate, and financial planning issues before implementing this critical component of business planning.
The single most important driver of a company’s value is the management team. Smart owners commit to a plan to lock in their key employees. Developing programs that encourage your key people to stay makes sense from every business perspective. People feel valued. Managers are paid for producing results. And with proper design, they have strong incentives to stay with the company.
If you intend to transfer your business to a family member, there are a number of issues you should address as you formalize your plan. Will the ownership transfer by gift or sale? Do you have family members who are not active in the business but rely on the company for support? Will you have money available to support your lifestyle after you exit? What can you do to prepare the family member for the company leadership role you want them to fill? These are but a few questions that need careful consideration.
If you want to get the most money possible for your business so you can cash out and move on, selling to a strategic buyer is the way to go. This path is fraught with difficulty and is potentially a minefield of issues. In order to walk away with the most money, after taxes and advisory fees, a considerable amount of intentional planning is necessary before you will be ready to sell.
Selling to your key employee(s) makes a lot of sense from every perspective, save one. In all but the rarest of cases, they do not have the money to buy you out. With proper planning, and given time to let the plan work, this simple approach can often accomplish all of an owner’s goals for exiting the business.
ESOPs are poorly understood not only by business owners but also by most of the business advisory community. They are a very flexible arrangement that can accomplish a broad range of goals for owners and employees alike. With the right advisory team, an ESOP becomes a very attractive option to consider from the tax, estate, and financial planning perspective of a business owner.
Have you ever been approached with an unsolicited offer to buy your business? They can come at any time and you may not be prepared to respond. What you need is a “Quarterback Coach,” someone who can see the entire field of tax, estate, merger & acquisitions, valuation, and legal players and can coach you through the encounter.