Eliminate uncertainties

Working with small and middle market businesses on succession and transition issues, we regularly find ourselves in conversations with the owners on estate planning.

Estate Planning means more than simply preparing a will.  In its broad sense, the term “estate planning” entails more than providing for the disposition of assets upon one’s death with a minimum amount of taxation.

Comprehensive estate planning, of course, provides for that.  However, such planning also provides for the administration and protection of assets during one’s lifetime and for decision-making should a trigger event occur.

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Selecting the right buyer for your business

One of the greatest gifts a business owner can bestow on their family is to transfer their business to them.  However, reality is that most children don’t want to take over as they may have separate careers of their own, or they do not have the skills and abilities to keep the business profitable and successful.

Confronting this realization that the children don’t (or can’t) take over can be unsettling.  Upon accepting this reality a business owner might look to an outside buyer as the next logical choice.

Owners may believe they have multiple suitors ready and willing to buy the business, but they can find the transaction evaporating when the perceived value is below expectation, financing is unattainable, or the owner believes selling to an outside buyer is the least stressful option. 

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An elusive standard in closely held businesses

Businesses, whose employees frequently hold significant ownership interests, are particularly vulnerable to IRS attack on their compensation deductions.

A company organized as an S- or a C-corporation, reasonable compensation becomes an important concept.  Generally, on audit, the IRS will look to see if salary to owners is too high (for C-corporation owners) or too low (for S-corporation owners)

Companies structured as an unincorporated sole proprietorship, a partnership, or a LLC, reasonable compensation is not something to be concerned about.  That’s because, such business entities are generally taxed as partnerships, and the income owners or partners earn from them is subject to personal income tax and self-employment tax.

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Good budgets are worth the time and trouble

Working with small and middle market businesses with few or limited cash resources, a good budget can be the difference between financial success and fiscal challenge-or the business’s inability to expand to its full potential.

Budgets prepared by closely held companies vary widely from no written budget at all (“It’s all in my head.”), to fairly detailed and accurate ones.  In the case of business valuations, an ownership interest depends on what the business will accomplish in the future, while reasonable estimates of the future assists in arriving at a value. 

A budget functions as an action plan.  In essence, it is the translation of strategic plans into measurable quantities that express the expected resources required and anticipated returns over a certain period.  It is an adaptable tool for management to achieve its goals and objectives.

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