For family businesses, tax and business planning is not just important for current success, it can be critical for its ongoing ability to remain viable. Here are key questions you need to ask — and answer.
What’s Your Plan?
You have a dream, certainly. But do you have a plan? Without this, your business is a rudderless ship, subject to storms that can capsize it. Start by writing a business plan with short- and long-term goals for profit, growth, and market share.
You also need a succession or transition plan. Nearly half (47%) of family business owners say they plan to retire in the next five years but do not have such a plan. This leaves your business at significant risk.
Who Does What?
It seems simple, but this is one of the most crucial questions to ask. If you have multiple members of the family who participate in the running of the company, draft an organization charge to show responsibilities and lines of authority. There should be no question as to who reports to whom or who makes what type of decision.
Do You Need to Change Your Business Entity?The business entity type you choose has significant consequences in terms of your financial and tax situation. Whether you run your company as an LLC, an S-Corp, a C-Corp, a partnership, or a sole proprietorship, you need to review and determine if this structure is the best option. We can help you restructure, if necessary, so you make the most advantageous decision based on your unique needs.
Do We Have Formal Guidelines?
A family business isn’t an open cash register for members to dip into whenever they want a loan. Any funds extended to a family member need to be documented as completely and accurately as they would be if it were a third party. Also, use of company assets, such as vehicles, needs to be documented as they may have tax implications.
What About Our Retirement Plans and Benefits?
What types of benefits do you offer employees (including family members)? Use these as a tax planning tool and to help you attract and retain your people.
As mentioned, many family business owners do not have a succession plan. They may love their work so much they never want to retire! They may not have a family member in mind to take over. They may be consumed with the day-to-day running of the business. Whatever the case, set aside time to think about transition. Remember, this is where the majority of family-owned businesses meet their demise.
Because passing ownership can be complex enough — and you have family dynamics to add into the mix — it is important to have a clear, and documented, plan.
In the shorter term, the next step should be consulting with an experienced tax and accounting professional. They can guide and advise in these complicated areas so your family business has the best chance of not only surviving, but thriving. Contact Faw & Associates today.