Change Is OK: How Planning Makes You Focused and Flexible
|
||
|
|
||
|
When planning for the future, you have a wealth of options related to who should continue to run your business. Many business owners’ plans fall short because they are unaware of the many options they have available to them and the pros and cons of each path.
One common exit path is a family business transfer. This allows you to keep the business in the family and still have an attachment to the business. You may not get as much money for this type of transfer and it could take longer to complete, but there may be real benefits as well. Benefits of a Family Business TransferThere are many benefits that come along with transferring the ownership of your business to your children or someone else in your family. Financial Security: If you properly structure the business transfer, you may be able to receive the amount of income you need and want by the end of the transition process. Further, you can design the transfer so that you retain control of your business during the transfer period and until you receive all of the money you want. You might achieve this benefit through ongoing involvement with the company, participation in profits as an owner, and/or sale of ownership. Time: If you are not ready to leave the business today, you can structure the transfer to the next generation to take 5–10 years, depending on your goals and objectives. You can create a custom transition that addresses the abilities of the successor owners and the readiness of the business. The timeline for this path gives you time to slow down, develop new interests, and prepare yourself and your business for life after the transfer. It also gives you time to collect income from salary, perks, and distributions while maintaining control. Taxes: Using a strategy customized to family transfers, you may be able to minimize certain taxes. You might create a balance among income tax, capital gains tax, and gift and estate tax that fully leverages multiple tax planning techniques. You may be able to achieve a better outcome with a thoughtful combination of planning strategies. Values-Based Goals: Owners often choose to transfer their businesses to children because, if done correctly, it achieves so many of their values-based goals. From the role of the business in the community to taking care of future generations, family business transfers can help to achieve these types of goals in ways that a traditional sale might not. Challenges of a Family Business TransferAlthough there are some obvious perks to keeping the business in the family, there can be some challenges you need to be aware of before you make your decision. Financial Security: Basing a business transfer on your family ties, especially ties to someone who can’t or won’t run the business properly, is a huge threat to your financial security and the very existence of your business. Time: If you want to leave your business within a year, remember that getting paid full value for the company from children generally takes several more years than a sale to a third party or Employee Stock Ownership Plan (ESOP). Taxes: Without careful tax planning, you could pay far more in taxes than necessary when transferring ownership to your family. Values-Based Goals: Sometimes family transfers run amok if your goals are not in line with those of your family. None of these challenges are insurmountable unless you fail to recognize the existence and significance of each and create a written and comprehensive road map to address them.
|
It is safe to say that this year was full of surprises. Some businesses thrived, while in other areas jobs were lost, companies were forced to go under, and we even lost loved ones along the way. Many businesses were affected by the pandemic in some way or another. According to a survey conducted by the PNAS (Proceedings of the National Academy of Sciences of the United States of America), 43% of businesses temporarily closed, and nearly all of these closures were due to COVID-191.[1]
We also learned that many small businesses are financially or structurally fragile. Companies were often strapped for cash, even when they had access to temporary government stimulus funds. Although we may not have been able to foresee and properly plan for this year’s business and family disruptions, there are a few lessons to be learned about planning for the future so that your business can be more flexible and tolerant to change. We saw that responding to tough situations can be a good way to showcase your creativity and motivation to stay on track. Flexibility is KeyMajor changes in the economy, your industry, or your health can happen quickly. Companies that have the ability to turn aspects of their business model and operations on and off more quickly can minimize negative impacts (or maximize positive impacts) of unexpected changes. Remember that it may not be enough to be prepared to change direction in your own mind. Communication with your employees can keep everyone moving together and smooth out rough spots if you have to change gears. Having a strong and adaptable team and team leaders will also help with transitions. Industry changes happen often, and sometimes randomly, so having a team in place that is able to think on their feet and come up with creative improvements to the business can help your business thrive even in trying times. Also, by leasing your equipment, vehicles, office space, and even employees, you can make your business more agile. Hiring contract labor or utilizing outsourced vendors can give you more freedom to make changes quickly. Think of it as adjusting dials in your business rather than locking yourself into fixed or inflexible investments. Fire Drills Improve OutcomesIt can take valuable time to work through emergency or disaster scenarios, and it can be awkward to “practice” what you’ll do if faced with a major threat or disruption in your business. As awkward as it may seem, fire drills do work. When your team knows what the process is during an emergency or major change of events, they tend to act more calmly and make better decisions when an actual emergency does arise. Work through and document what you will do if: · You lose your largest customer or contract. · You lose your top executive or manager unexpectedly. · Your distribution channels are disrupted. · One or more components of your technology stack fails. The more prepared you are for the unexpected, the better off your company and your employees will be. Don’t let them get thrown off by surprises. Have open communication about what they can expect if a major change happens. A Belt and Suspenders Work BetterPlanning for multiple solutions to a single problem is a good way to manage the impact of a disruption in your business (or in your life). Owners of closely-held businesses often have a lot of their wealth, and their family’s security, tied up in their business. However, the business is often illiquid, or its value may not be enough to support your family for an extended period of time. Owners who prepare for unwelcome changes might be able to use either a “belt” or some “suspenders” to hold up their family, such as: · Investing in income-producing assets outside of the business. · Reducing company debt (or at least removing yourself from personal guarantees for company debt). · Maximizing opportunities for funding retirement through qualified retirement plans. · Developing a “sinking fund” in the business. Having some type of variation of solutions to any given problem can also ease the tension you or your family might have about the unknown future ahead of you. Preparation for the worst will only benefit the business down the road. You can truly never be too prepared. We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience. [1] https://www.pnas.org/content/117/30/17656
|
|
||
|
It can be difficult to consider what will happen to your business and your family if you die unexpectedly. Without proper planning, you could be leaving your family and/or key stakeholders in a huge mess. Proper planning allows you to keep your business on the right path even after an unexpected tragedy leaves you unable to continue running your business.
Estate plans focus on transferring assets upon an owner’s death. A successful estate plan achieves three important personal goals:
Estate planning can also be a tender topic for business owners because they will occasionally need to decide which family member is the most appropriate candidate to continue running the business after their death. Families have been torn apart over poorly executed estate plans. Consider the hypothetical example below.
Jonah Kaczmin sat nervously in his office. Until the day before, he had been president of Kaczmin’s Electronics, one of the region’s largest electronic component distributors. Now he was on his way out of a job and felt he was a victim. Naturally, his first thought was to sue those responsible for his misfortune. The targets of his wrath were his younger sister and his mother. They had forced him out of the business, out of a job, and felt he was a victim.
After his father’s death, Jonah had received 49 percent of the stock in the family business. Another 49 percent share went to his sister. The remaining two percent—the swing vote—was held by their mother.
Jonah’s father had brought him into the business early and taught him well. After the founder’s death, Jonah assumed all responsibilities for sales and became the key man in the business. His sister, Stella, handled the bookkeeping and other administrative matters. Her husband managed the customer service department.
Despite the economic slump that hit the region, the business persevered under Jonah’s stewardship. It had a long-standing tradition of service and good name identity because the elder Kaczmin had pioneered new packaging and distribution methods.
Because of his dedication to the business, Jonah had not spent much time nurturing family relationships. He was less a devoted son to his mother than was his sister a devoted daughter. As their mother aged, she became increasingly susceptible to the influences of her daughter. Family friction continued. A confrontation was inevitable.
Jonah had always assumed that his superior abilities and position as president and board chairman would enable him to win any family showdown. He was wrong. At a special meeting of the board of directors, Jonah was removed from his posts, fired as an employee, and given three months of severance pay—after 25 years in the business.
Johah naturally felt victimized…but not so much by his sister and mother as by his deceased father. By failing in the most important remaining task in his life—to plan his estate and the future of the business—the elder Kaczmin made his son an unintended victim.
Jonah’s unfavorable business transition experiences may have been avoided had Jonah’s father asked and answered six critical questions.
An owner’s thoughtful answers to these questions, followed by appropriate implementation of a plan, may well prevent a similar experience in your family and support a smoother business transition for all parties involved.
Keep in mind that a well-crafted estate plan is only one key element of a successful plan for you, your family, and your business. Don’t let an unattended estate plan be the weak link in your overall plan.
We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience.
|
||
|
|
||
|
Dear Pennsylvania Insurance Department Licensee,
You are receiving this notice because your Pennsylvania Insurance license is scheduled to expire within the next 60 days. Please refer to your license for your specific expiration date. In response to the COVID-19 spread in the Commonwealth and pursuant to 40 P.S. 310.8(e), the Pennsylvania Insurance Department is extending the licensing renewal deadline until further notice.
We encourage you to take advantage of our online resources to renew your license. You can renew your license electronically at www.sircon.com/pennsylvania or www.nipr.com.
Please note: If you are unable to renew your license by the license expiration date, any and all renewal requirements, including CE, are still applicable and the Department will work with licensees once COVID-19 has been contained to meet these requirements.
While the Department strongly encourages licensees to take advantage of online continuing education (CE) courses, we understand that at this time, the circumstances related to COVID-19 may prevent some licensees from being able to complete CE requirements in time for their license renewal. Therefore, until further notice, the Commissioner of the Commonwealth, pursuant to 40 P.S. 310.8(e), will temporarily waive CE requirements for licensees who cannot meet requirements due to extenuating circumstances related to COVID-19. For licenses requiring CE, visit www.sircon.com/pennsylvania for information about approved online CE courses.
If you have already submitted a renewal application, please visit www.insurance.pa.gov/licensees/onlineservices to use our online licensee search to verify that your license has been renewed or print a copy of your license. Please allow up to 24 hours for the website to update after renewing your license online. The Department no longer mails licenses.
This email serves as your official license renewal notice, and you will not receive a paper invoice. The Department encourages all licensees to update your contact information including email addresses through Sircon or NIPR to ensure that you continue to receive future correspondence from the Department.
For additional updates and information visit the Pennsylvania Insurance Department’s website at www.insurance.pa.gov.
Office of Market Regulation | Bureau of Licensing & Enforcement | Licensing Services Division
1209 Strawberry Square | Harrisburg, Pennsylvania 17120
Phone: 717.787.3840 | Fax: 717.787.8553 | www.insurance.pa.gov
|
||
|
|
||
|
Succession planning, Exit Planning, and business planning may seem interchangeable in most people’s eyes. However, each type of planning plays a very different role in the process of designing, and then implementing, a strategy for leaving your business and planning for the future. You can’t use one strategy without the others when it comes to running, growing, operating, and eventually leaving a business.
These planning approaches go hand in hand. Although they have their similarities and overlap in some ways, there are some major differences you may want to think about in order to plan effectively for your future and the future of your business.
Succession planning has become a common term to most business owners. This type of planning strategy is primarily focused on the transfer of leadership, management, and/or ownership of a business from one person to another. This strategy usually encompasses the identification of potential successors and the training of the chosen successor to build the skills and expertise to successfully run the business once the original owner decides to back away or move on.
Succession planning also emphasizes the timeline for when an owner is planning to part with their business. The succession planning process could take years, depending on the availability of successor candidates, business valuation, profitability, current management team in place, incentive plans, etc.
The main difference between succession planning and Exit Planning is succession planning primarily focuses on the smooth transition (succession) of the operation of the business. A primary goal of succession planning is to find the right person to take over your business and make sure the process of leadership transfer go smoothly. Succession planning may primarily focus on the goals and objectives of the business and may not be as focused on the owner’s personal goals for the future.
Exit Planning can be considered a broader approach to planning for the future. Although one of the main goals of Exit Planning is to ensure a seamless transition from one leader to the next in the business, this approach also considers the future plans of the owners for themselves and their families. Exit Planning considers a business’s financial status, the valuation of the business, the position in the market, employee benefits, and the owner’s family as well as the community in which the business is operated. It tries to identify the gap between what a business owner has today, and what they want for the future. It really is a full picture of all factors that affect a future change in your relationship to your business. This process encourages planning for everything so that when you are ready to leave your business, you’ve worked through as many factors as possible.
Although each owner’s exit strategy is going to be unique, typically each plan consists of some or all of the following 7 steps.
Business planning can refer to the overall plan of how you run and operate your business. This is commonly a strategy most business owners use throughout the lifecycle of their business, from the very start to the day they consider selling the company. Your business plan is a living and growing document. It is often going to be focused on how your business will approach and succeed in its chosen market. It probably looks at how you’ll be profitable in your chosen lines of products and services. It may be reviewed regularly to be sure you are meeting your company goals. Having a solid business plan can play a role in your succession and your exit. The more detailed the business plan you have in place, the easier it may be to advance a succession and exit.
A well-run company always has a plan in place. The planning processes never ends. Your business plan can help ensure the success of the business in its entirety and can eventually provide support for your future plans, including succession and Exit Plans.
We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm. We appreciate your interest. Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity. For professional use only. All information can be subject to change without notification. |