Business owners who need payroll funding from our company may have inherited the business from a relative. There are several pitfalls that families need to consider when handing down a business to a new generation. Understanding these problems can help to prevent serious financial losses or the loss of customers.
One: Not Considering the Tax Ramifications
In order to avoid a financial penalty from the government when turning a business over to a relative, make sure to hire an accountant who has a specialty in tax codes. To ensure there are no additional taxes for you or the new owner to pay on their federal or state taxes, verify all of the information provided by the tax accountant and contact an attorney.
Two: Forgetting to Talk to an Attorney
Make sure to contact an attorney that specializes in family-owned business law to prepare paperwork that makes it easier to pass down a business to a relative. In addition, this is a good time to discuss the tax issues that you have learned about from an accountant. It is also possible to bring both of these professionals together to help solve any problems.
Three: Avoid Hurt Feelings within the Family
If you have several relatives who think they are inheriting a business, then have a family meeting to discuss the situation. When handing down a business, you can choose joint ownership with stipulations concerning who is in charge of particular duties.
Four: Preventing a Resale of the Business
When you have spent a lifetime making a family business successful, you don’t want to choose a relative who will sell the company immediately after it is passed on to them. You can create legal paperwork to prevent this from happening and include detailed stipulations concerning selling a family-owned business.
Five: Choosing the Wrong Successor
In the past, a family-owned business was always passed down to the oldest son, but you might want to choose another family member to begin operating a company instead. A business owner must consider if the person they select is responsible enough to manage all aspects of a company.
Six: Failing to Make Sure the Business is Financially Sound
A family business that is struggling to pay employees can apply for payroll funding from a payroll funding company, but you should always make sure that a business is financially sound before passing it down to a relative.