A lot of people have put a huge amount of time and effort into their business. The day will come when they no longer want to be in the company. Often, businesses transfers from one family member to another. In this article we’ll take a look at five key factors you’ll want to consider when transferring your business to someone else in the family.
Factor #1 Gifting Can Have Numerous Benefits
Gifting your business can come with major benefits like reducing your real estate taxes. It’s also important to note that the gift process can allow you to maintain a level of control if the agreement is written properly.
Factor #2 The Buy-Sell Agreement
This document puts everything in writing and can help to keep confusion levels low and the chances of success high. It should feature everything from the value of the business, the amount being paid for the business to who will be kept on the payroll and what level of involvement you’ll have once the process is finished. When it comes time to make the transfer, you’ll want an expert to create a document that outlines all relevant details.
Factor #3 Seller Financing
Seller financing is quite common among sellers. It becomes more common when it involves relatives. One option is to consider a private annuity. A private annuity allows for payments to spread out for many years. It can even extend until the end of your life. This can be a great option for both the buyer and the seller. It allows the business to stay in the family while also providing a steady income stream for the seller. Be sure to consider seller financing as one of your key options.
Factor #4 Considering the Self-Cancelling Installment Note
This part of the paperwork will confirm that if you were to pass away before all the payments have been made, the remaining debt can be attached directly to your will. This can be a real benefit to your family in the future. It is something worth considering when making this type of transaction.
Factor #5 Transferring a Business to a Relative and the IRS
The IRS is always on the lookout for unethical behavior. You’ll want to make sure that everything looks professional and by the book. This includes having all your paperwork in order. If you’re looking to transfer your business to a family member, be sure to consult with an accountant or tax lawyer to make sure you’re doing everything correctly.
A business broker can help you avoid mistakes and negotiate the best deal for your business. Every business is different, so it’s important to work with a professional who understands the unique particulars of your sale.