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Anthony J. Bardi
Registered Representative
Enrolled Agent, LTC# 454
Tax and Financial Solutions, Inc.
151 SE 223rd Avenue
Gresham, OR 97030
Phone: 503-666-7909
September/October 2020
Succeeding with Succession
Running a small business is not for everyone, but younger family members often want the challenge of taking over when founding generations retire. Here’s how you can work toward continuing the family business from one generation to the next, even in times of uncertainty like these.
Start with a Plan
A succession plan lists what events—death, disability or retirement—will trigger the next generation of leaders. It should also determine a valuation method—usually from a qualified valuation expert or certified public accountant—to determine the company’s fair value.Next, communicate frequently with your successors. You may have differences over how to run the business, and you’ll need to resolve them—you can’t run the business forever. You will want to create a development plan that allows family successors to gain the crucial experience necessary to run your concern. And you may want to begin making shared business decisions that allow your loved ones to get hands-on experience running the company.
Money Matters
While family members are learning all the tricks of your trade, create a buy-sell arrangement that works for everyone. Using the valuation established earlier, detail how the next generation will buy into the business. Also figure appropriate compensation to leave a loved one who doesn’t participate in the business to equalize your estate.Your sale price and schedule of payments may be included in your buy-sell arrangement, and you’ll also address tax responsibilities, the value of business assets and total liabilities. You also may want to address potential liquidity issues to avoid future problems for both the seller and buyers. Pre-paying the transfer, whether through gradual ownership shares while working together, contributing to a sinking fund or purchasing a life insurance policy, might help address any potential liquidity issues.
Begin working toward an agreement as soon as you and your loved ones decide family succession is in everyone’s interests and review your succession plan regularly, because change happens.
Most important, work with qualified legal, tax and financial professionals to come up with a plan that benefits you, your family and your business.
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Tax and Financial Solutions, Inc. and LTM Client Marketing are unrelated companies. This newsletter was created by LTM Client Marketing and was not written or created by the named financial professional and does not necessarily represent the views and opinions of Avantax Wealth Management® or its subsidiaries.
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