Business Owners Beware

     Are you a business owner? Are you the first one to arrive in the morning, as well as the last one to leave in the evening? Have your employees ever taken home paychecks while you sacrificed your paycheck to the bottomless pit called accounts payable? Have you ever paid your mortgage on a credit card?
     Over the years, you have worked through physical, mental and financial pain that would have caused other folks to close shop and look for a job elsewhere.
     As a business owner you have survived untold challenges. If your business is a family business, then you may face some unique challenges to protect and preserve your business … and your family.

Some Numbers

     It would be an understatement to say that family businesses are the backbone of the American economy. Some 90 percent of all businesses in this country are either family-owned or family-controlled. They come in all shapes, sizes and colors, representing all sectors of our economy. From agriculture to services, technology and manufacturing, family businesses generate an estimated one-half of the U.S. Gross National Product and pay half of all wages earned in this country.
     Not all family businesses are traditional small businesses either. In fact, about one-third of all businesses included in the Fortune 500 are family businesses. But not all of the family business statistics are rosy.
     Family businesses tend not to outlive their founders. At any given moment, 40 percent of family businesses are in the process of transferring their ownership. Unfortunately, two-thirds of all initial transfers fail. Of the one-third that survives an initial transfer, only one-half will survive a second transfer.

Tragic Transitions

     Why such a dismal success rate? The reasons are as varied and unique as the businesses and business owners themselves. Nevertheless, many of the failed transfers can be traced to three causes: people, taxes and cash.

People Planning

     The family element in every family business can mean the difference between its success or failure during the transfer process. The retirement, disability or death of the business owner are all common events that can trigger a business transfer.
     Tough questions must be asked and answered. Otherwise, a business that took decades to build can be destroyed overnight.
     For example, who will run the business after you? Will it be your spouse, one of your children or a non-family member key employee? If your spouse will not run the business, will he or she still be financially dependent on it ... or can you make arrangements to ensure they are financially independent of it?
     What arrangements have you made for the inheritance of your children who are not active in the business? Have you in-law proofed your estate?
     Thinking ahead to the second-generation transfer of your business, what provisions have you made to encourage thrift and industry among your grandchildren?

Estate Tax Uncertainty

     The only certainty about the federal estate is its uncertainty with each change in Congress and the White House. Additionally, many states now impose their own estate taxes, independent of any federal estate taxes.
     Accordingly, careful monitoring of the economic, political and legal climate is required. Why? Without proper estate-liquidity planning, your family may have to sell the business just to meet an estate tax cash call.

Bottom Line

     If your financial and estate plans are not carefully coordinated, there may not be enough cash to fund your objectives. An appropriately-funded estate plan can meet all of your people-planning objectives and provide liquidity for estate taxes (and business debts). Life insurance, owned in the proper amount, type and manner, may be effectively used to fund such money matters.