Preparing Your Company for an Eventual (and Profitable) Sale

If you are a small business owner, chances are that most of your personal net worth is tied up in your business.  So even if selling your company is not on your radar anytime soon, there will come a day you will want to cash out and sell it at the best possible price.

Even if you plan to sell to partners or transfer to family members, there are some things you should be doing to ensure your own investment is protected:

Build an investment as you build your company. Anyone who eventually buys your company will be looking for investment value, so pay attention to how you can add value to your business. This starts with having a diversified management team, so the business does not just depend on you and there are seasoned managers a new owner can count on. Building good customer relationships so you have a recurring source of revenue makes your company more valuable as well.

Get a valuation of your business. Hire a professional to provide a thorough valuation of your business at least a year prior to sale. This will give you a time to shore up any areas that need improvement.

Document your business plans and processes. A well-run company runs on written plans and processes. These are necessary not only to demonstrate good management practices, but also crucial to protect you from litigation. Be sure you have all agreements with employees, customers and vendors in writing and that employment rules are codified in an employee handbook.

Implement effective tax strategies. Be sure your business structure provides you with the maximum tax benefits and asset protection strategies. If a large percentage of your own net worth is in the company, you need to protect that by operating as an LLC or corporation.

We can help you protect and grow your company through effective risk management.  Call our office to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit today.

 

Ensure the Longevity of Your Family Business

According to the Family Business Institute, less than one-third of family-owned businesses make it past the second generation of ownership and only 1 in 10 survives through three generations.

Based on a New York Times study of family businesses, here are some tips on how you can ensure your family business survives:

Reinvention.  Businesses that continually find ways to reinvent themselves through new markets or new product lines are much more likely to make it through several generations of ownership.

Good succession planning.  While succession practices vary – some families hold an election while others rely on a current CEO to choose – the family businesses that continue to thrive are those that pay careful attention to planning for the next generation of leadership.

No guaranteed employment.  Hiring family members just because they are family is a recipe for disaster in family businesses.  Those companies that have rigorous standards for employment of family members fare better in the long run that those that do not.

Outside counsel.  Having outside advisors on the board or as part of a “kitchen cabinet” brings important new perspectives to a family business, and can be used to “shore up” areas where family managers may be lacking in expertise.

These tips for preserving a family business are good advice for any business that wants to keep going beyond the first generation of leadership.

To learn more about maintaining business viability through skillful business planning, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

How to Build a Business That Endures

If you have built a successful business and plan to leave it to your heirs or business partners, doing so is not a process that just happens naturally after you retire or die.  If you don’t have a buy-sell agreement, a business succession plan, a business transition plan or a business preservation plan in place, your dream could die when you do.

Any number of factors can work against your dreams if you have not planned ahead. Your business could be valued by the IRS for more than it can be sold for, leaving your family unable to pay the taxes. If you are in a partnership, your partners may not have sufficient financial resources to purchase your ownership share from your heirs.

A properly drafted buy-sell agreement provides for numerous triggering events – death, disability, divorce, retirement, etc. — when someone can purchase your shares of the business or make sure that your shares are passed to your beneficiaries.

A buy-sell agreement is a binding agreement that is put into place before you retire or die. Depending on the needs of your business, a buy-sell agreement can be created to utilize a variety of payment options for the selling shareholder or estate.

For example, you can choose lump sum payments, conservative payments terms over 5 or 6 years, or aggressive payment terms over two years or less.  You should also make sure the company is not cash strapped with payments by providing a life insurance policy to provide the company liquidity and to implement your business preservation plan.

If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

Retirement Planning Guidelines for Every Age

You’re never too young or too old to save for retirement; here are some guidelines by age group:

Under 25:  If you graduated from college with debt, you are certainly not alone – the average debt burden is currently $26,500 for 65 percent of college graduates.  Once you are able to get a good job, you should enroll in your employer’s 401(k) or other retirement savings plan and contribute enough to qualify for your employer’s match – usually six percent of salary.

25-40:  You need to be putting away about 10 percent of your income towards retirement, and that should come before you save for a house or the kids’ college fund.

40-54:  You are in your prime earning years and should be able to contribute 15 percent or more to your retirement savings.

55-70:  Retirement is within sight now, so you may need to start adjusting your asset allocation to risk.  The closer you are to retirement, the less risk you should be taking.  You should also look into long-term care insurance to protect retirement assets.

Over 70:  Your withdrawal rate should generally be no more than four percent of your total portfolio value, not including an emergency reserve fund, to supplement your income from Social Security or pension.  Once you are over 70 ½, you must take the Required Minimum Distribution (RMD) from your traditional IRA and 401(k) every year, which is calculated based on your life expectancy according to IRS Publication 590.

If you’d like to learn more about retirement planning, call our office today to schedule a time for us to sit down and talk.  Call now  to get started!

 

Retirement Plan Options for Small Business Owners

Creating an estate plan for your business is just as important as developing one for your personal assets.  Part of estate/succession planning for business is planning for the day you eventually retire and hand the reins of the business over to someone else, either through succession, inheritance or sale.

Most small business owners want a retirement plan that is fair to themselves and employees – one that provides the desired tax benefits without eroding the company’s liquidity.  Here are some common retirement plan options for small business owners:

SIMPLE IRA.  SIMPLE (Savings Incentive Match Plan for Employees) IRAs don’t allow employees to contribute as much as they could to traditional 401(k) plans, and employers are required to match employee contributions.  In addition, plan owners cannot borrow money from a SIMPLE IRA and there are no tax-free options like a Roth.

SEP IRA.  The SEP (Simplified Employee Pension Plan) IRA is funded entirely by an employer, who also makes all the investments.  Earnings grow tax-deferred, but there are no loan, catch-up contribution, Roth or profit sharing options with a SEP IRA; the primary benefit for the employer is a more relaxed tax reporting requirement.

Traditional or Solo 401(k).  Versatility is the main reason these 401(k) plans are so popular with small business owners, providing employers with a contribution match option and the ability to make loans to employees.  For those who are 50+, these plans offer catch-up contribution and Roth options.  Solo 401(k)s offer higher contribution levels than traditional 401(k)s, but only the smallest businesses – no to very few employees — qualify for these.

As your Creative Business Lawyer®, we can help you sort through the options that are right for you, your family and your business.  Call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit so we can help you identify the right retirement plan options for you, your family and your business.