The Entrepreneur’s Corner
Solidifying the long-term future of your business
Here’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:
• Who is in line to follow the principals of the firm? The most fundamental aspect of a succession plan is to have a replacement (or replacements) in line. In many cases, a family business will move from one generation to the next. In other situations, a trusted employee or group of employees may need to be groomed and prepared to assume control of the company in the future.
• How will control of the business be transferred? Once successors are identified, there are a variety of ways that control of the business can be transferred to them. Among the options are an outright sale to the new owner – either in a one-time transaction or an installment sale – or the use of a trust vehicle, such as a grantor retained annuity trust (GRAT) or a grantor retained unitrust (GRUT). Those are irrevocable trusts to which you transfer appreciating assets while retaining an income payment for a set period of time. At either the end of the payment period or your death, the assets in the trust pass to the other trust beneficiaries (the remainder beneficiaries). The value of the retained income is subtracted from the value of the property transferred to the trust (i.e., a share of the business), so if you live beyond the specified income period, the business may be transferred to the next generation at a reduced value for estate or gift tax purposes.
An important consideration in the decision-making process is 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.
• What forms of protection are in place in case an unexpected event occurs? The need to implement a succession plan can sometimes strike without notice. 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, such as divorce, also can 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. Remember, however, that you are bound under a buy-sell agreement.
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.
Citizen Staff Reports 07/18/2016
Good Vibrations choral group is looking for all voices with some musical experience to sing with the volunteer choir. The season runs from August to November. Genre includes patriotic and inspirational. > Read more.
Henrico County Recreation and Parks will present “Red, White, and Lights” at Meadow Farm Museum/Crump Park July 4.
Henrico County has hosted a Fourth of July celebration annually since 1981, but this year’s event will offer a later start time and expanded hours and be highlighted by new entertainment.
The free event will begin at 4:30 p.m. and will feature the Richmond Symphony, a laser-light show, patriotic performances, and family activities. > Read more.
There are some great events this weekend in Henrico that will take your mind off the incredible heat. Highland Springs residents are invited to a Neighborhood Block Party with music, games, food and giveaways. The Tuckahoe Square Dance Club will host a dance at Pinchbeck Elementary School. There are still a few spots left for a free women’s self-defense class at The Academy of Kung Fu. And the Pocahontas Chapter of the Virginia Native Plant Society will continue its Sunday Strolls at Dorey Park. For all our top picks this weekend, click here! > Read more.
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CalendarThe Alzheimer's Association Greater Richmond Chapter will host a support group meeting for caregivers of those with Alzheimer's or dementia at 6 p.m. at St. Mary’s Hospital, 5801 Bremo Road,… Full text