Tax and business planning is important for the success of any
organization, but especially for the family-owned enterprise. Here are
some important questions that owners of family businesses need to address.
1. Do you have a plan?
Without a plan, your business has no direction and possibly no future. You
can be sure your strong competitors have written plans. Write a business
plan that includes both short and long-range goals. Include specific goals
such as profit, growth, and market-share targets. Plans for conflict
resolution and transition should also be included.
2. Who's running the store - family, outsiders, or
When several family members participate in the company, an organization
chart should be drawn to clearly show lines of authority. Promotions
should be based on a clear, fully understood set of guidelines.
3. Should the legal form of the organization be
Whether your business is a sole proprietorship, a partnership, a
regular corporation, an S corporation, or a limited liability company, you
should review your business form periodically to see if it's still the
best choice for your business. The legal form under which you operate can
make a difference in the taxes you pay, the costs of doing business, and
the amount of paperwork and red tape you'll have.
4. Have you reviewed your retirement and fringe
The types of plans available depend on your business form. Besides
being an excellent tax planning tool, such plans can be effective in
motivating and retaining employees.
5. Are formalities observed?
Family members occasionally overlook the fact that business assets are
not personal assets. Company loans to family members need to be
documented. Shareholder or employee use of corporate assets, such as
automobiles, may have income tax consequences. Get advice so you structure
6. Who's next in line?
Many family businesses are lucky enough to have a very strong member
at the helm. But that person won’t live forever.
survival of any family business depends on how wisely one generation
passes ownership to the next. The more family members, the more complex
the situation is likely to become.
deciding when and how to transfer your business, consider estate taxes.
The IRS's share, with today's high estate tax rates, could fatally weaken
the business's cash flow.
that only 30% of family-owned businesses survive to the second generation,
and only 13% survive to a third generation. Careful planning while you're
still at the helm may prevent the demise of your business.
© This material is copyrighted. 2011