Transitioning Your Business in a Down Economy Can Have its Benefits

Posting by Geoffrey D. Brown, CPA, Principal

Are you considering selling your business but are concerned that this may not be the time to sell? Do you have plans, at some point, of turning your family business over to the next generation?

Today’s (November 23, 2009) Wall Street Journal talks about how investors are skittish and exhibiting defensive behavior in the markets.  Banks are continuing to make borrowing difficult and venture capital funds are having difficulties raising money.  Interest rates are at historic lows.  The economy is still in the doldrums and that means that business valuations are going to stay depressed at least for a while.

The current conditions might make it ripe for you to consider taking an action step now, in this down economy, of setting the wheels in motion to transfer the ownership of the family business to the next generation. You might want to consider a strategy of either gifting or selling the ownership of the business to family members.  The economy’s depressed values might make it easier to pass on the business to your heirs. As a business owner, I would advise that you consider beginning the process now, so you can take advantage of the tax rules and lower valuations.

Obviously, there are some important things to have in place before such consideration: it’s important that there is a succession plan in place and that younger family members are prepared to govern and manage the business.  But you should know that, even if the younger generation is not yet prepared for the task, the business owner, through the use of trusts and other instruments, can begin the transition process. Today’s market is the perfect time to start to set the guidelines in place and there are ways to ensure that the business owner remains control and continues to manage the family business while still beginning the process of transferring the ownership to the next generation.

So, while many business owners may not have thought much about transition plans, today’s economy begs that they do just that.  I would suggest meeting with your advisors, begin to plot out your strategy and swing into action while the opportunity exists.

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