Why Every Business Owner Needs An Exit Plan!

Business owners work hard to build their businesses and care for their families. While business owners and their families come from varying backgrounds, vocations, and personalities, they have much in common. They have a need to bring order to their affairs. They are enthusiastic about helping loved ones and causes they care about, and many have the resources to do so in meaningful ways. They desire to expand their horizons beyond present boundaries. They enjoy the company of people who understand them, and who appreciate their goals, values, and passion for life’s important matters.

Yet, in spite of all the hard work and care of business owners, only 30% of family-owned businesses survive to the next generation; only 10% make it to the third generation; and only 3% are functioning into the 4th generation and beyond.

Why? Most business owners simply do not plan an exit. They do not do proper estate planning. They are so caught in the routines of their lives that they often forget to look at the big picture and plan for the contingencies of disability, retirement and death. Or, the business owners have plans that are out of date and ineffective due to changes in circumstances and changes in the laws. Lack of planning resulting in the lack of smooth business transition and unnecessary tax burdens drain the life out of their businesses.

Estate planning, which includes business exit planning, allows you to determine what happens to you, your loved ones, and your assets while you are alive and well, in the event of disability, and after death while saving unnecessary taxes, expenses, and stress. Effective planning allows you to give what you have, to whom you want, the way you want, and when you want. Estate planning and business exit planning go hand in hand. Let us take this concept further:

You can combine your business, financial, tax, legal, and philanthropic matters into a unified Wealth Strategies plan that can:

1. Maintain control over your person & affairs. You can have a plan where you obtain and keep control in your hands. You do not want to be unnecessarily dependent upon others and you want to able to make commons sense adjustments as circumstances change without needless red tape or seeking the approval of others.

2. Assure your lifestyle. You can convert highly taxable built-in appreciation to tax-free profits and tax-efficient income. You can create protected lifetime income streams.

3. Protect your wealth and income from legal judgments. With prudent planning measures, you can assure that years and decades of hard work will not be lost to lawsuits. “Predator” protection, divorce protection, and bankruptcy protection are common client concerns.

4. Eliminate or substantially reduce income taxes. Federal and state income tax laws provide a number of planning opportunities which often combine to generate substantial income tax deduction and deferral opportunities.

5. Manage the value of your business. You can maximize the value of your business in the hands of children and succeeding generations to perpetuate their business wealth and the income it produces.

6. Pass value and responsibility to family members. You can provide direction and guidance to ensure the well-being of your loved ones. Spouses want to protect and provide for one another in light of all aspects of the family’s personal and economic considerations. Parents and grandparents want to make sure that each of their children and grandchildren will have the ability to lead productive and meaningful lives, filled with self-esteem and confidence.

7. Reduce gift, estate, & generation skipping taxes. Sound planning can rid you and your estate of these confiscatory taxes. You now must consider both federal and state tax codes in light of major recent changes to the tax laws. Beware of the decoupling debacle!

8. Privacy protection and protection from administrative expense and delay. You can avoid having you, your loved ones, and your estate subjected to lengthy, stressful, and expensive judicial proceedings upon disability or death.  

In short, proper planning can bring order to your affairs and generate very substantial tax savings while meeting your specific objectives. Otherwise all is left to chance!

A sound business exit plan provides for the possibility of a long-term illness or disability. What would happen to your business if you became disabled? You should know that the chance of becoming disabled in any given year is greater than your passing away in a given year.

Have you planned for retirement? What would happen to the business?

What happens to your business after your death? Do you want to continue the business? Do you have family members in the business? What about your key employees? Would you sell the business? Who would buy the business? Have you considered taxes? Would the business have to be liquidated to cover debts, expenses, and or taxes? Do you wish to leave a legacy?

The law gives you many tools, but they have no value if you do not use them!

This information was prepared by Lena Barnett & Associates, LLC and is intended only to provide general information. It is neither offered nor intended for use as legal advice, nor is it a substitute for a consultation with an attorney.

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