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Overview | An overwhelming majority (about 90%) of all U.S. businesses are owned by families, and it is estimated that family businesses generate about half of the country's gross domestic product, half of the total wages and are responsible for about 77% of all new job creation in the US. In contrast, it is surprising to find that only about 30% of family-owned businesses are successfully passed on from one generation to the next without being sold, closed or liquidated for tax purposes. Many businesses falter where the family have been left to fight it out. Other businesses are sold because there is not enough cash available to pay associated taxes. A well thought out legal and tax plan can help you guard against these situations. To help ensure the future of your business, you should first ask yourself whether you are prepared to pass control to the next generation and consider the financial implications in doing so. |
Preparing for the Future | In general, you are not in a position to pass on your business unless you are financially secure outside the business. Building up a pension outside the business is a tax effective way of saving for the future, while creating financial independence. Having a proper will in place that is in line with your business plan is also vital to your preparations. Your will should take into account tax planning, while providing for your spouse's future and for the business to be passed on to your successor. Your will should also provide for those children who will not inherit the business. Other considerations include the cost of passing on your business to your child now, on retirement or on death. Certain tax incentives are available that encourage the passing on of family business to the next generation. Tax efficient insurances can also help cover the costs involved in this. |
Family Issues | Often, the work of family business owners, their financial advisers, lawyers and other professionals is wasted if it focuses solely on tax strategies, estate strategies, and other financial concerns without focusing on the obvious "family issues" that may surface and could destroy the continuation of a successful business. The first issue arises when you ask yourself who will run the company. If it is a family member and there is more than one candidate, how do you decide who is the best person for the job? How do you make these types of decisions without leaving someone out? One suggestion is to employ a third party to interview and test each family member to determine their best fit within the company. Another important question to ask is how to keep "family" business out of the workplace? It may be useful to coach the parties involved to distinguish between family and business and how to remove family issues from the workplace. |