7 Questions to Contemplate When Letting Go of Your Business
By Cynthia Calderon and Michelle Young
*Published on The Business Journals, October 21, 2020
One of the greatest joys of starting your own business is nurturing it, watching it grow, and see your vision transpire. Often, there comes a day, just as in raising children that you begin to realize it’s time to let go. It could be for any number of reasons such as retirement, financial actualization, spending more time with family, or simply being ready to move on to something new.
Whether you intend to have your business acquired or it is embarking on an IPO, it is important to be planning a minimum of one to two years in advance for this personal transition. Many owners are surprised by the emotional and financial impact this has on them, their partner, spouse, and children.
If you wait too long to start planning, you might find yourself in a position of making haste decisions without fully understanding the implications and regretting it later. In some cases, state laws might even negate some of your planning decisions if enacted too close to the sale or IPO. If you live in a high-income tax state like California there is a valuable opportunity to significantly reduce, or even eliminate, state income taxes on the sale of your business if planning and action are done far enough in advance.
Begin by surrounding yourself with competent advisors who can help you through this process and care about you and your family beyond the financial benefits. Ideally, your transition team should consist of a seasoned attorney specializing in M&A or IPOs, a highly experienced CPA, an investment banker or business broker, a valuation expert, a wealth advisor, and family advisor. Your team should be working in concert together at every step to protect your best interests. A family office can provide great insight and manage this team for you.
The prospective sale of your company presents an immense opportunity to plan for your family, reward those who have helped you achieve your success, and activate your philanthropic interests. This requires a level of introspection. Here are seven key questions to contemplate:
How important is it to you to reduce the tax impacts and to what extent are you willing to go to relive that tax burden? Would you be willing or able to relocate the business or your residence to a more tax-friendly state?
Would you be willing to transfer some or all of the interests in your business to an irrevocable trust in a tax-favored jurisdiction?
What kind of lifestyle do you envision upon the sale of your business?
How much is enough for you to live your desired lifestyle or even start a new venture?
Are you willing to give up control of a portion of your assets to transfer wealth to your current or future family while saving up to 40% in estate taxes?
To what extent are you willing to provide for friends and/or family and under what terms? How much is “enough?” How do you plan a legacy for people who are not in your life yet?
What are the charitable interest and how can you best have a meaningful, social impact?
These are big life questions and can have significant long-term consequences and, often irreversible.
Letting go of your business is the journey of ging from managing an operating business to creating a family wealth enterprise. Having liquidity from the business can provide you with a broader reach into your life’s purpose in ways you might not have imagined.
It is at this time when entrepreneurs begin to see the full value of having a family office. The family office can be instrumental in navigating the creation and management of your family wealth enterprise. You can expect from your family office ongoing planning and implementation of strategies, wealth education for loved ones, and a buffer from an onslaught of solicitations that comes with newfound wealth.
Embrace the change that comes from letting go of your business and see it as an opportunity to refresh your life and move on to the next adventure. Include those you love to be part of the process and assemble a transition team you trust wholeheartedly.
*San Francisco Business Times online article published October 21, 2020.