The Family Business: Avoid These 4 Lethal Legal Mistakes

If you operate a family-owned business or are considering starting one up, there are four potentially lethal legal mistakes you should take care to avoid, including:

No employment agreements.  Family members who work together are usually hesitant to confront one another if someone is not pulling their weight.  Having an employment agreement for everyone ensures that expectations for job performance are spelled out and what the grounds are for termination.

Mixing family and business finances.  Many family businesses start with loans from various members, and as the business grows, those initial investments need to be protected.  This is the stage when you want to consider setting up your family enterprise as a limited liability company (LLC) or a corporation.  Most small businesses use an LLC structure, which provides liability protection for personal assets and allows for company profits to flow through to owners.

No licenses.  Even if you operate out of your home, you will likely need to obtain a local, state or federal license to operate your family business.  While licenses are generally inexpensive, the fines for not having them can be costly.  You can find out what the requirements are in your area by contacting your city hall or county office.

No succession plan.  Family business feuds can easily occur when there is no succession plan in place.  Also, legally speaking, if a business has not been incorporated or formed as an LLC, the business dies when its owner does.  If you started a family business to keep it in the family, you need to follow through with a formal succession plan.

Having a business attorney who understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

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.

 

3 Steps to Maximize Profits When Selling Your Company

If you are planning to sell your company now or sometime in the future, a recent Forbes.com article advises that there are 3 strategies you should use to get as much cash out of your hard work in building the business as possible:

Pre-sale planning.  Look for opportunities to increase the sale price of your company.  The first step is having a current valuation of the business as well as financial statements prepared that accurately portray the value of the company.  Consider reading the book “Built to Sell” by John Warrilow and taking the assessment at his site by the same name, http://www.BuilttoSell.com

Pre-sale tax planning.  Examine your company’s tax situation and that of your family as well prior to any sale, then look for ways to minimize any taxes that could result.  For example, you may want to restructure any assets not used in the business to be sold apart from the company or use them for other purposes.  You should also look into the use of trusts to freeze the value of the business so that when it is sold, estate taxes will be less.  If you are so inclined, charitable trusts can be used to eliminate capital gains taxes.  And, you will want to consider, of course, whether you are selling assets or stock, which have different tax impacts.

Negotiate skillfully.  All the planning you have done prior to the sale of your company will help you be a more skillful negotiator.  Take the time to understand the motivations of the buyers, which can provide excellent insight you can use to your advantage when negotiating the highest possible price for your company.

Taking these three steps will help you position yourself to get the best price for your business and help you increase your family wealth.

If you’re a small or mid-size business owner and considering selling your business or want to ensure it’s prepared well for sale, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

Why Every Business Owner Needs an Estate Plan — Even Before You Think You Do

Most business owners build a business with an endgame in mind: either cashing it out or passing it on.  Whatever your scenario is for what happens to your business when you retire or die, it is not likely to happen without a comprehensive plan that aligns your personal and business objectives.

If you plan to pass on your control of the business to one or more of your children, then you may want to consider giving them direct voting interests via your will or a trust.  If you own business real estate that is separate from your primary business, you will want to establish a mechanism for passing on that real estate to your heirs.

Some things to consider for protecting your business interests in your estate plan include:

Buy/Sell Agreement.  If you don’t have one, you need one now.  If you do have one, you need to ensure it is up to date and that the valuation mechanism used – appraisal, formula or fixed valuation — will still work for your purposes.

Liquidity.  Will there be enough cash flow from the business to still support the business, provide income to your surviving spouse and pay estate taxes?   If not, you need to consider having the business own a life insurance policy or set up an irrevocable life insurance trust to meet these needs.

Authority.  Does your will provide your executor with the necessary authority to protect and preserve your business interests?  More importantly, does your executor have the expertise to manage your business interests?  This is especially important if you have ownership interests in multiple business entities.

These are just a few of the considerations you need to make when taking the necessary steps to align business planning with estate planning.

This week is National Estate Planning Awareness Week, so take this opportunity to 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.

 

How To Prepare Your Small Business For A Profitable Sale

When you started your own business, you probably didn’t give much consideration to selling it. However, with statistics showing that 80% of a small business owner’s net worth is tied up in their company, preparing your business for a profitable sale should be on your radar.

Whether you plan to sell your business outright or transfer to partners or family members, here are some steps you should take to protect your assets:

Know what your business is worth. Getting a professional valuation of your business is key to a profitable sale. Be sure that whoever values your business has expertise valuing businesses in your industry.

Build your business as an investment. The eventual buyer for your business is looking for a good investment, one that will continue to pay long after you are gone. Build your business as an investment by having a diversified management team that has some skin in the game so that they will stay on after the sale. Having a business that provides recurring revenue is also more attractive to buyers, so be sure your growth strategies are built on a solid foundation.

Have written plans and processes. If your business plan exists only in your head, this is a sign to buyers to beware. Be sure your plans and processes are well documented so that new ownership can step in and run the business seamlessly.

Take taxes into consideration. When determining the best time to sell your business, take taxes into consideration. Funding a retirement plan for employees and other tax saving strategies should be employed to shelter assets from taxation.

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.  Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.

How to Use Estate Planning Strategies to Transfer Business Interests

Planning for the transfer or liquidation of your business when you are ready to retire or when you die is just as important as the planning you did in starting up your small business.  Here are some tips from a Creative Business Lawyer™ on how to use estate planning strategies to transfer your business interests:

Business Structure – How your business is set up – as a partnership, a sole proprietorship, an LLC, a C Corp or an S Corp – can have a great impact on estate taxes.  If you want to preserve your business for future generations, a family limited partnership can allow you to transfer ownership of the business to children as limited partners and enable you to maintain control over the business.  Setting a business up as a corporation allows for the issuance of stock to the owner and common stock to children utilizing the IRS’ estate freeze rule, which decreases tax liability.

Trusts – Business owners can use trusts to remove the value of the business from their estates and pass business interests on to the next generation while maintaining some control over the assets.

Buy-Sell Agreements – If you plan to transfer a business to a partner or partners upon your retirement or death, a buy-sell agreement is a necessity.  Having the agreement specify the transference of sale proceeds to a trust for your beneficiaries keeps the value of your business out of your estate, so your heirs will not be hit with a hefty estate tax bill.

Estate planning for businesses can be complicated, so small business owners should consult with a Creative Business Lawyer™ to ensure the right strategies are put in place for your individual circumstances.

Having a business attorney who understands the individual needs and unique circumstances of your company is key to proper estate planning. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

 

How to Ensure Your Business Goes On Without You

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.  So if you do not 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. The IRS could value your closely held business for more than it can be sold for, and your family will not be able to pay the taxes. If it is a partnership, the other partners may not have the cash flow to buy your share of ownership from your heirs.

A properly drafted buy-sell agreement provides for numerous triggering events to make sure that when you or your partner dies, becomes disabled, gets divorced or simply just wants out, that 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. Working with a Creative Business Lawyer® can help ensure that your business can thrive even after you are gone.

We can help you prepare for the sale of your small business and guide you through the steps to a successful sale. Whether you are new to entrepreneurship or already operating a business, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

 

How to Evaluate a Buyer for Your Small Business

Selling your business should be approached with the same attention to detail as when you started your business. There is nothing worse than wasting weeks of your time on a deal that will never go through because the buyer is not serious or does not have the cash to buy your business. Spend a little time to get to know your potential buyer to avoid nasty surprises.

Have all potential buyers sign a confidentiality agreement before you share proprietary financial information. This is standard, so if a buyer balks, it is a red flag.

Get full contact information. It seems basic, but make sure you have a full name and all contact information for all parties.

Get a basic history. Know where potential buyers have worked and/or what businesses they have owned. Act like you are interviewing them for a job.

Where do their funds come from? This can be an awkward question to ask, but you need to know how much they have and where it is coming from.

What are their immediate financial needs for your business? Do they have a minimum monthly income requirement, and does your business currently meet it?

What is their timeframe? Buyers who are not serious will not be able to answer this question in concrete terms.

Ask why they want to buy your particular business. If you are uncomfortable with what they have to say, you may not want to go any further.

Get the counsel of a Creative Business Lawyer® to ensure the process goes smoothly, and your interests are properly protected.

We can help you prepare for the sale of your small business and guide you through the steps to a successful sale. Whether you are new to entrepreneurship or already operating a business, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

How to Prepare for the Sale of Your Small Business

If you have made the decision to sell your small business, there are a number of things you will need to do in addition to consulting with a Creative Business Lawyer® to ensure the process goes smoothly:

Set a realistic price.  Coming up with a realistic price for your business will entail some research.  Look at what similar businesses in your industry have sold for, and check with your industry association to determine sales trends.  You will also need to estimate the worth of your business based on actual assets as well as any goodwill.

Consider taxes.  Be sure you understand the tax consequences of the sale of your business, which will be affected by the structure of your company (whether it is a corporation, LLC, partnership or sole proprietorship) and whether you are selling the assets of the business, or the entire entity.

Get financials in shape.  You should consult with a tax attorney or accountant about recasting your tax returns to add back any discretionary expenses that prospective buyers may not spend – for example, if the company paid for your family’s medical insurance, or bonuses were given to family members.

Advertise.  Unless you have a buyer in mind, you will likely need to advertise the sale of your business in local newspapers, trade publications and on business sale websites.  If you are willing to part with a commission, a business broker may also be an option.

Negotiating the sale.  This is where having the counsel of a Creative Business Lawyer® can prove invaluable.  Whether you are selling all or part of your business, the guidance provided by an experienced attorney can give you peace of mind that you are striking the best possible deal.

Developing a sales agreement.  This should include a list of the assets included in the sale as well as the value of the assets, any contracts or business relationships the new buyer will be assuming, and the structure of the sale, including how you will be paid.  Again, the counsel of a Creative Business Lawyer® is highly recommended.

Closing preparation.  You will need to prepare a list of all the documents and other items like building keys and security codes that need to be turned over to the buyer at closing.

Filing the IRS paperwork.  After the sale, you and the new owner must file an Asset Acquisition Statement with the IRS and include it with your tax returns.

We can help you prepare for the sale of your small business and guide you through the steps to a successful sale. Whether you are new to entrepreneurship or already operating a business, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.