Family-owned businesses should establish a succession plan, optimize tax benefits and communicate preferences long before the day arrives for the owner's retirement or death, suburban business experts said Thursday.
Owners also need to decide when the time is right to sell their family business or whether they want to pass it on to the next generation.
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"Not only do business owners have to address traditional estate-planning issues such as who do they want to name as trustee and who are their beneficiaries, but they have to develop a business succession plan as well," said Dawn Griffin, senior vice president of First American Bank in West Dundee.
Griffin, along with Barry Link, president and CEO of LDS Wealth Advisors in Wheaton, and Tony Ozzauto, partner in Catalano & Caboor in Lombard, discussed several issues related to family businesses before 100 attendees at the Newsmakers program Thursday at the Doubletree by Hilton Hotel in Downers Grove. It was hosted by the Daily Herald Business Ledger, a publication of Arlington Heights-based Paddock Publications Inc.
Besides succession, the experts covered a range of topics, including tax planning, family versus outside employees as leaders, fair and equal division of the business to heirs, life insurance options for owners, strategic plans if the owner becomes disabled or dies, and how to diversify assets,
Throughout it all, business owners need to know exactly what they have.
"You need to find out what your business is worth and, if you want to sell it, you need to get a fair appraisal for it," said Link.
Besides knowing the business' worth, owners should have a sell agreement among partners, in case one dies and the other takes over. Another plan should focus on what leaders do in case an owner becomes disabled, And to streamline finances, owners should look at tax shelters, redesign pension plans and other finances, said Link.
"Owners should not keep all their eggs in one basket," Link said. " ... You need to diversify."
Ozzauto believes owners should consider the options: Selling the business in the future, passing it on or gifting portions of the company.
"If you want a legacy, you need to consider what to do," Ozzauto said. "And then you need to consider what is taxable, how much it will be, when it is taxed and the rates."
As owners stay focused on building the business, things like appraisals and succession plans could be placed on the back burner. But that's not the wisest course of action, the experts said.
Getting the planning done early -- while working with a team of accountants, lawyers, bankers and other experts -- provides the necessary foundation to keep strategic plans on track, the experts said.
While legal and technical details help keep a business in the right place and ready for the next owner, many emotional factors come into play as well, they said.
Ozzauto remembers, as a teenager, he worked in the family's fast food restaurant and his father actually "had the nerve to fire me."
"Then I had to drive home with him and then I had to have dinner with him," he said. "So there is a need to separate business and a personal life."