For the success of any business, tax and business planning is essential, especially for a family owned business. Do you have a business plan in place? Below are 6 things that every family business needs to address.
- Your plan. If you don’t have a good business plan, you have no direction and possibly, no future for your business. You can be sure that your competitors have a plan in place. Your business plan should include goals for both short and long term. The plan should also include a strategy for profit goals, growth, market share targets, as well as conflict resolution and transition.
- Who’s running the business? When there are several family members working at the business, you need a plan showing the clear line of authority. Base any promotions on a clear and fully understood set of guidelines.
- Should the legal entity of the business be changed? The legal entity that you use to operate your business 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. It’s a good idea to review your business entity periodically to see if it's still the best choice for your business.
- Review your retirement and benefit plans. The type of plans available depend on your business entity. Not only is this a great tax planning tool, but it’s also effective when it comes to motivating and retaining employees.
- Follow the business rules. Business assets are not personal assets. Sometimes family members overlook this fact. Document all business loans to family members. At times a shareholder or employee may use the business assets, such as the company car, and this may have income tax consequences. If necessary, seek advice to make sure you structure any transactions correctly.
- The next in line to run the business. The more family members, the more complex the situation. Therefore, the successful survival of your family business depends on how astutely ownership is passed from one generation to the next. Statistics show that 2nd generation survival is at 30%, whereas, 3rd generation survival rate of a business is only 13%. By carefully planning while you’re still in charge may prevent the failure of your business.
At Summit CPA we offer multiple resources to assist you with all of your tax and financial planning needs. Contact our office at 866-497-9761 to schedule an appointment with our advisors.