Planning for the sale of a business or a transition of ownership to the next generation of the family is best done with the advice of an attorney, CPA, and financial professional. There are many issues to consider when planning for the future of your business. A well thought-out plan is necessary and having the proper legal documents can avoid problems and limit the risk of litigation between the parties by creating clear expectations for everyone involved.
An agreement for the sale of a business needs to outline the terms of payment, list all items to be transferred with the business, and define which party will receive funds from unpaid invoices and which party is responsible for paying outstanding bills owed by the company. For some businesses, the success of the company is dependent upon the owner remaining involved for several years to train and/or mentor the purchaser or successor of the business. The details of the arrangement, including terms of payment, should be clearly described in writing.
Can the payment for purchase of the business be made through future profits of the company?
Purchasers of a business, whether they are family members, current employees, or third parties may not have the money to immediately buy the business. However, there are purchase options that can include payment from future profits. It can be difficult to find a person to purchase a business for the amount of money a business owner would like to be paid upfront. However, a smaller upfront down payment can be followed over time with payments of a percentage of the profits for a certain number of years.
Business Succession Planning and Estate Planning
If you are a business owner, your estate planning will entail a review of your business organization documents to determine whether changes should be made regarding what will occur to the business upon your death. It is always best for the business to avoid probate upon the death of one of the owners. It will be necessary to address the transfer of the business upon death through the ownership documents themselves when avoiding probate. Making a succession plan for the business is another important consideration when creating estate planning documents. A transition plan can be set in place for a family member or employee to purchase the business over time while leaving the proceeds of the purchase for certain family members.