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Preserving Your Wealth with a Clear Exit Strategy
Entrepreneurs find success, because they have singular focus. They take an idea and turn it into a full-fledged business. When you are getting started, your energy is devoted to building - planning for your eventual exit is the last thing on your mind. However, the sooner you start thinking about succession planning, the more likely you are to preserve the wealth generated by your business. Your Certified Tax Coach offers insight into the most common ways separation eventually occurs, and how you can prepare for the most likely scenario, so you don’t lose your profits to taxes.
Building Value vs. Funding a Lifestyle
The first question to consider when you create a long-term business plan is what underlying goal drives your operations? Is your intention to build a valuable company, or are you working to fund a certain type of lifestyle? Whether and how you expand is dependent on the answer to this question. Those that fail to clearly define financial goals often end up stifling growth due to conflicting strategies.
If you are working to fund your lifestyle, a large portion of your profits go towards your personal bills instead of being reinvested in the organization. As a result, your business may not experience a substantial increase in value. This impacts your options when it comes to your eventual exit, and you may not realize the same tax benefits as those who are focused on building the value of their businesses.
Your Certified Tax Coach is an excellent resource as you create your business strategy, providing expert insight on the tax ramifications of your long-term plans.
Options for Exiting the Organization
When the time comes to explore other career opportunities, or you are ready to retire from the working world, you have choices. The most common options for leaving a business include the following:
- Transferring Ownership to a Family Member - Family businesses are a wonderful way to set future generations up for success, and gifting or selling a company to children or grandchildren is a popular choice for succession planning. Of course, there are a few caveats to this. The most important issue is whether there are family members interested in operating the business, closely followed by whether those that have an interest also have the skills necessary to be successful. If this does prove to be the best option, when and how you transfer ownership has a dramatic impact on the taxes you or your beneficiaries will pay.
- Selling to a Third Party - When passing the company along to a family member doesn’t make sense, many business owners choose a third-party sale. For some, that means securing an individual buyer, while others find that being acquired by another organization is most profitable. In this situation, the most appropriate option depends on who has an interest in buying. With that information, you can look at all of the details to determine which transaction would best meet your financial goals and your goals for the future of your business.
- Closing Your Doors - There are many reasons why you might decide that going out of business is the best choice for your company. It is a simple method of exiting the organization with no further obligation. Unfortunately, closing your doors is the least profitable method of leaving the business, and it can be discouraging to have nothing to show for your years of hard work.
Learn more about these options, along with other exit strategies, when you work with a Certified Tax Coach.