Every business owner will eventually have to turn over control of their business to someone else. There are many avenues for how this can happen. They range from selling to a prospective buyer, selling to a competitor, or turning the business over to a family member. The key is to start thinking about all of these options for several years before you end up in a situation where you are actually forced to sell.
Working with a Business Broker at American Business Acquisitions in the greater Chicago area can help you determine what sales options are optimal for your specific situation. To help shed some light on the options above, here are some variables to explore when you decide to transfer your business to a family member.
There can be significant advantages when transferring a business to a family member. Without a doubt, the top advantage is the fact that the transfer can be considered a gift. This approach will help reduce your real estate taxes. You might also be able to maintain some control over the business as well, depending on how the agreement is written. For many business owners, this factor can be a big advantage.
When transferring a business to a family member, one item you’ll want to explore is seller financing. This is a common practice in general, although it is even more common when transfers to relatives are concerned.
Seller financing is a versatile option of implementing a private annuity. A private annuity can spread payments out across a long period of time. This option can be a win-win situation for both you and your relative. This would ensure a long-term stream of income as a result of ongoing payments. In turn, this decision might make ownership more financially realistic for your relative.
It Is important to keep in mind that selling to a relative no way negates the need for a buy-sell agreement. Even when you’re dealing with your most trusted family members, having a legal agreement in firmly in place is a must. This is an invaluable tool that protects everyone involved.
A buy-sell contract will clearly outline all aspects of the arrangement. This agreement should include the value of the business, amount being paid, information on which employees will be retained, the current business owner’s level of future involvement, parameters of financing, and much more.
Working with Professionals
Ultimately, there is a spectrum of potentially powerful benefits that are associated with transferring ownership of a business to a relative. While you can expect the IRS to closely evaluate the sale, this should not dissuade you from considering this option. The Business Brokers at American Business Acquisitions are experts at buying and selling businesses, and they understand the specifics of transferring a business to relatives. Early on in the selling process, you’ll want to work with a professional to help you gain tremendous insight into the best way to proceed.
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