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Business Planning

Most business owners believe that the most integral part of business planning is ensuring the stability of your business in case you die or become disabled. But it is more than just that. It is also crucial to reward yourself and your key people while you are still living.

If you are like most business owners that West Coast Financial Group, Inc. has worked with, you may not have had the time to effectively plan for some of your business' basic financial needs. Our advisors can help you grow your business and meet your financial goals by balancing your personal and professional needs.

As a business owner, we know that you have numerous concerns regarding the future of your business.

West Coast Financial Group, Inc. can provide considerable insight into those concerns. We can also help you with the following:

  • Income tax planning
  • Financial strategies
  • Business Continuation Planning
  • Estate Planning
  • Employee Benefits
    • Benefit Options
    • Employee Benefits Planning Process
  • Executive Compensation Planning

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Building your business to its present level has been a significant achievement and a great source of pride. Keeping it going and growing for years to come can represent a lasting legacy for your employees, your customers, and your family. There are many facets to consider, and there is no time like the present to begin.

In-Depth Business Planning

  • Business tax planning

    When starting a business, you must consider several tax-related issues. Although business tax planning is complicated, it is essential to understand three major topics: tax consequences when the business is formed, tax consequences when the company generates income or loss, and tax consequences of business distributions. Additionally, you may wish to consider whether your chosen form of business will offer you opportunities to split your income tax liability among family members, potentially lowering your overall family tax bill.

    What are the tax consequences of business formation?

    When a business is formed, an owner typically transfers cash or property to the business in exchange for an ownership interest. It's essential to understand the possible tax implications of this exchange. Tax treatment varies depending on the type of business entity you select. Additionally, you need to be aware of the concept of "boot" and the tax consequences of transferring property encumbered by liabilities to the corporation.

    What are the tax consequences if the business generates income or loss?

    Tax treatment of income or loss varies depending on the type of business entity you selected.

    What are the tax consequences of business distributions?

    Tax treatment of business distributions varies depending on the type of business entity you selected.

    How can income be split among family members in a family business to reduce overall income taxes?

    You should be aware of the following topics:

    Income splitting
    Kiddie tax
    Excessive compensation of family members

    Business Continuation Planning

    One of the critical decisions a business owner must face is when and how to step out of the business--in other words, business succession planning. Do you expect to retire from your business? Do you have a plan in place? What would happen to your business if you were to die today? Do you have children you hope to bring into the business? These are questions only you can answer, and your answers will lead you and your financial and legal advisors to a course of action. When you develop a succession plan, you have two basic choices: sell your business or give it away. Once you choose to sell or gift, you can structure your plan to go into effect during your lifetime or at your death.

    Transferring your business interest with a buy-sell agreement

    You can transfer your business interest with a buy-sell agreement, a legal contract that prearranges the sale of your business interest. It allows you to keep control of your interest until the occurrence of an event specified in the agreement, such as your death, disability, or retirement. A buy-sell agreement can help you solve the problems inherent in selling a closely held business. When you structure your agreement, you can tailor it to your needs.

    With a buy-sell agreement, you choose the events requiring a sale

    When you draft your buy-sell agreement, you establish the triggering events under which the sale can or must happen. Typical triggering events include death, disability, or retirement. Other events like divorce or bankruptcy can also be included as triggering events under a buy-sell agreement.

    A buy-sell agreement provides a ready buyer for your interest

    At the occurrence of the triggering event, the buyer is obligated to buy your interest from you or your estate. The buyer can be a person, a group (such as co-owners), the business itself, or a combination. You (or your family or estate) are spared the task of trying to find a buyer when you are ready to sell.

    Price and sale terms are prearranged

    A significant function of the buy-sell agreement is establishing the pricing mechanism for selling the business interest. The payment method is typically also determined when the agreement is drafted. The primary sale negotiation is conducted when there is no pressure to sell. This eliminates the need for a fire sale when you retire, become ill, or die, which may result in greater fairness in the deal.

    A buy-sell agreement can interfere with other estate planning

    Once you are bound under a buy-sell agreement, you can't sell or give your business to anyone except the buyer named in the agreement without the buyer's consent. This could restrict your ability to reduce the size of your estate through lifetime gifts of your business interest unless you carefully consider and coordinate your estate planning goals with the terms of your buy-sell agreement.

    Sell your business interest

    The significant benefits when you sell your business interest are control and cash: you keep control of your interest or business assets until you are ready to let go and decide how much or how little you want to sell.

    Selling allows you to receive cash (or convertible assets) and choose the timing

    When you sell your business interest or assets, you receive cash (or assets you can convert to cash) that can be used to maintain your lifestyle or pay your estate expenses. You can choose when you want to sell--now, at your retirement, at your death, or some point in between. You can sell your interest during your lifetime and receive cash for your retirement, a new business venture, or that trip around the world you've been putting off. When done at your death, an asset sale can provide cash for your estate to pay your final expenses or for distribution to your beneficiaries.

    A limited market means a sale could be difficult

    There is often no market for the sale of a closely held business, which could make finding a buyer for your interest difficult. Some assets, such as equipment, may have a specialized use or a short time frame of technological usefulness. If your business is a service business, it may be hard to find a buyer for intangible assets such as your customer list. The level of competition in your geographic area or business field could also affect your ability to find a buyer. When the sale occurs after your death, your family or estate may be disadvantaged when negotiating with a potential buyer. The interested buyer can be expected to try to take advantage of your family's need for cash to settle your estate expenses and offer a price below a fair market value. A buy-sell agreement might be the solution to prevent this because it guarantees a buyer for your interest.

    Size of business interest, estate could make sale difficult

    The larger the size of your business interest, the more difficult it may be to find a buyer with access to sufficient cash or credit on short notice. In addition, the larger the size of your business relative to your entire estate, the greater the need for cash to settle your estate expenses. Again, transferring your business interest with a buy-sell agreement might help you to solve these potential problems. Smaller business interests are not without their own issues. Buyers may be reluctant to purchase a minority interest because such an interest doesn't carry the ability to control the business.

    Transfer your business interest through lifetime gifts

    You can transfer your business interest through lifetime gifts by doing just that--making gifts during your lifetime. You can choose to make smaller gifts of portions of your business interest over a period of time or make a gift in total at your retirement.

    Lifetime gifting reduces the value of your estate and could lower your estate taxes

    A lifetime gifting program removes the value of the business from your estate as you make gifts to the recipient. The benefit to you is a reduction in the value of your total estate, thus the possibility of lower estate taxes at your death. Not only do you remove the value of the gift itself from your estate, but you also remove the future appreciation on the gift and taxes associated with the gain.

    Lifetime gifting allows you to take advantage of the annual gift tax exclusion, which may help you reduce total gift and estate taxes

    You could make gifts of unrestricted stock over a period of time by arranging the gifting program to maximize the annual gift tax exclusion, which allows you to (currently) gift up to $13,000 per recipient per year without incurring federal gift tax (although you may have to pay state gift tax). The benefit to you is a tax-free, systematic reduction in the size of your estate. When you make gifts of portions of your stock, you ultimately pay less total gift tax than if you made one large gift, thanks to the valuation discount.

    Lifetime gifting requires you to give up part or all of your business

    As you make gifts of your business interest, you might also be giving up some of your ownership control over the business while the recipient of the gift gains control. If you have co-owners, your relative percentage of control will diminish. If you are the majority stockholder, it might take a long time before you are in a position of significantly less control. If you hold equal ownership with co-owners, it may not take long to become a minority shareholder.

    Transfer your business interest at death through your will or trust

    If you wish to keep control of your business until your death and transfer your interest to someone at that time, you could transfer your business interest at death through your will or trust. This method of business succession can be effective when the intended receiver of your bequest is currently active in your business and would be able to carry on the business activities.

    Will provisions can authorize the continuation of your business

    A will provision can direct the executor of your estate to continue your business for a specified period of time or purpose, thus granting permission to carry out activities that otherwise may not be allowed. If the business is continued, the executor may be held personally liable for business losses. Caution should be taken by authorizing the executor to incorporate the business, which may limit liability to continued business activities. After your death, the business can be maintained until your family can take control, and continued income from your business can be provided to your family and heirs.

    With a living trust, you can see your continuation plan in action

    A living trust would allow you to make a revocable transfer of your business interest, allowing you to see your continuation plan in action while you are alive. You can see your successor management operating the business while you are afforded continued control and input. This allows you to be completely satisfied with your decision before it becomes irrevocable at your death.

    A living trust can provide income to you or your heirs

    Depending upon the structure of your living trust, you may receive an income from the trust during your retirement until your death. At your death, the business may provide income to your family or heirs, or the business can be maintained until your family or heirs can take over.

    Use of a trust can be efficient and private

    When you establish a living trust, it requires you to organize your property during your lifetime. In doing so, your assets are transferred at death in an orderly fashion as you intended and not at the court's discretion. Using a trust will be less expensive overall because your assets pass from the trust directly to the people you designate to receive them, avoiding the costly probate court process. This would be considered a private transaction, keeping the transfer free of any publicity.

    Choosing the right type of succession plan

    The various succession strategies can be used to achieve specific goals for your business interest. Depending on your situation, one or more of these tools may be appropriate for you. The tricky part is, how do you decide? We can help you review your options. Once you have narrowed your choices, meet with your attorney and tax advisor to develop your business succession plan.

For more information about our firm and the services we offer, send us a quick email or call the office. We would welcome the opportunity to speak with you. | (813) 269-7100