With COVID-19 being such a disruptive event, it is difficult for business owners and tax advisors to plan further ahead. The details of an exit plan are essential for any business owner to consider. These could include matters financial and tax-related, and personal topics that will depend on the individual’s needs.
When considering exit plans, it’s essential first to assess the business structure. Is this current organizational makeup still advantageous for owners? Could the business benefit from a structural change? You may choose to file as an individual, partnership, or LLC. The benefits are different, and it’s important to research which one will work best.
Which option is best for your business? A flow-through structure, partnership, or S corporation should be part of the equation when considering growth prospects and capital needs. The double taxation of C corporation income is a significant issue. The best way to avoid it would be by making sure that all profits generated from your business go towards paying out salaries and dividends.
The end of the year is a perfect time to consider what type of business structure will best serve your needs.
Employee Stock Ownership
One of the best ways to identify potential buyers is by considering current employees.
When considering whether to approach bankers with key employees, one must weigh the benefits of lending and owning. If you are looking for financial support in your business venture, this could be an option, but it will require that current owners provide some sales proceeds.
Employee stock ownership plans are usually only for businesses with at least 15-20 employees. The small size of these companies means it’s difficult to manage financially, so many of them need loans from banks and other financial institutions to make this type of structure workable.
There are many benefits to establishing an employee stock ownership plan, but they can be expensive. This is because there’s usually a need for investment advice and management services which may not come cheap in the long run. However, for large companies with a significant workforce, this could work out well if handled correctly by professionals.
Family As Business Owners
Lifetime gifts of business interests can be a risky proposition for family members looking to pass on their legacy. It is critical to consider the potential tax consequences of transferring your business before handing over control. A thorough examination into these issues should be made when passing on ownership interests in a company, especially if concerns about incurring taxes like gifts or estate arrived at through such transactions.
The concern is that, with the recent changes in politics and tax policy, we may see significantly lower transfer tax exemption levels by 2021.
When a family business is the bulk of one’s wealth, it doesn’t necessarily follow that they’ll be its sole owner. Year-end may provide an opportunity to consider gifting or selling some shares so siblings can take over management if desired without losing ownership interest in what has been passed down through generations.
The upcoming year-end is a unique time for estate and gift tax planning because of the high exemption levels. These may not last long, so it’s essential to start now!
Consideration of Potential Buyers
To increase your company’s profitability, you must begin considering potential buyers at this time. Examining how well competitors are doing and which private equity firms might buy them could lead to enhanced gross margins for future years.
The end of this year is an excellent time to begin considering the most likely prospects for buyers – competitors, private equity firms, and business brokers. It’s also a good idea to analyze your gross margin against competitors at the end of each year so you can strive for higher profitability. You might also want to identify which companies in this industry are more likely to buy up some stocks if they see an opportunity since that will help both sides benefit from any merger or acquisition.
We all know that realty is a crucial component of any business. However, what should you do if the type or style you’re looking for isn’t inside the corporate solution? The real estate market may be volatile and unpredictable, but there are still many benefits to either option. Keeping property within one’s family can allow them more time at home with loved ones while selling without regard for how much money you’ll get from doing so.
What are the best options for retaining real estate within a family without selling off all of their business? The answer to this question can depend on how much value you want to save from taxes, whether it’s worth keeping up with dating rules for potential heirs who may not be able themselves, and what type of valuation discount would otherwise apply.
The complexities involved in tax planning for sales of ownership interests extend to state and federal levels tax them.
Year-end planning is ideal for blending in long-term matters such as exit strategies. The most successful plans usually begin early, and this includes considering your company’s future needs for employment or other purposes after a business has been conducted successfully throughout the entirety of its current fiscal period.
We should always plan – even if it means making decisions about what will happen when there isn’t any more work left!
