Plan for short-term, long-term future of family business

Greater than 80 percent of all U.S. business enterprises are family-owned companies. These same companies employ more than 60 percent of the workforce.

Owners of these closely-held businesses face many challenges in managing the day-to-day duties that must be performed to nurture and grow their business. While these duties are essential, too often, planning for the future is ignored. Just like with your own personal financial planning, owners must also have a plan for business succession. Consider identifying short-term (what if I die tomorrow?) and long-term (what do I do when I'm ready to retire?) goals and objectives.

Owners must first understand what they want from their businesses. Are they concerned with leaving a legacy, creating a retirement nest egg, or laying a foundation for their heirs to build upon? Another vital question business owners must ask themselves is "who is interested in owning and operating this business?" Is there an existing partner who would be interested in buying my share should I want (or need) to sell? If there is an existing partner, a buy-sell agreement should be in place to protect all parties should one owner need to sell. The buy-sell agreement is a legal document that addresses ownership transition upon the occurrence of various "triggering" events which would cause one partner to exit from the business. This document should place a fair value on an exiting partner's share of the business. Buy-sell agreements are often funded with life and disability buyout insurance purchased on each partner.

However, what if you wish to remain in control of the business but still want to start the succession process?

One way to accomplish this transfer is to establish a "pass through entity," such as a limited liability company (LLC). The owner creates voting and nonvoting units of the LLC.

There are various types of trusts which are available to facilitate the transfer of ownership interests. Trusts commonly known as GRATs and GRUTs allow the business owner to transfer the assets into a trust and still retain future income for a period of years. These are subject to federal gift tax laws, but can be discounted.

A plan needs to be in place even if there are no existing business partners or family members who wish to own the business.