Preparing for the long-term future of a businessPaul RycroftHere’s an important question for busy business owners – what’s next for your company? Not just tomorrow or even in the months ahead, but when the time comes that you or one of your key employees retires or leaves the organization unexpectedly? At a time when many baby boomers are thinking about retirement, those who own a business need to plan not just for their life after work, but for the future of the firm they’ve committed so much of their lives to. In a small- or mid-sized business, the owner and perhaps other key personnel play such a vital role that special planning is required to prepare for circumstances in which any of these individuals is no longer part of the organization. If your business doesn’t have a succession plan in place, it is an issue that needs prompt attention. There are a number of questions to consider in helping prepare for the period of transition a company inevitably faces. They include: Question 1 – Who is in line to follow the principals of the firm? Question 2 – How will control of the business be transferred? There are other options to consider as well. An important consideration in the decision-making process is the potential tax ramifications, particularly for the seller. There are tools available to help reduce the potential impact of capital gains, estate and gift taxes when a sale occurs. Good planning plays a critical role in making sure that both the seller and the buyer achieve the most favorable results. Question 3 – What forms of protection are in place in case an unexpected event occurs? Businesses that involve partners or likely successors, for example, may benefit from having a buy-sell agreement in place. A buy-sell agreement lets you keep control of your interest until the occurrence of an event that the agreement specifies, such as your retirement, disability, or death. Other events like divorce can also be included as triggering events under a buy-sell agreement. When the triggering event occurs, the buyer is obligated to buy your interest from you or your estate at the fair market value. The buyer can be a person, a group (such as co-owners), or the business itself. Price and sale terms are prearranged, which eliminates the need for a fire sale if you become ill or when you die. Question 4 – If a plan is in place, are you keeping it up to date? Business succession is a complex matter. It involves close work with a financial advisor, tax specialist and an attorney experienced in these types of matters to structure a solution that is most suitable for your business and potential successors. It is a critical matter to address to assure that the rewards for years of hard work in building a successful business are realized long after you are no longer part of the day-to-day operations of the organization.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients. © 2011 Ameriprise Financial, Inc. All rights reserved.
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Alice TX Chamber News - May 2012 |