Dealing with an Inherited Business
Every family business owner should make a comprehensive succession plan and have it reviewed by a skilled legal, accounting, and banking team to ensure everything is in place for a seamless transfer to the next generation.
However, in practice, many business owners still need formal succession plans or other strategies for passing their company on to the next generation. As the next generation assumes control, this may put their businesses and, in many cases, their family’s most precious asset at risk. A family company can be a great honor to inherit. However, when there is a leadership gap or inadequate planning for estate taxes, the hazards of such a legacy might soon outweigh the benefits.
If you’ve inherited a business, you may have many questions. Even if you wish to start a business, you could want to work in a different sector. Even if you’re prepared to run the company, you might need to learn how to interact with the current staff and suppliers.
Here are some steps you should follow
1. Learn everything you can about the industry.
Inheriting the family business may be something you’ve been planning for years, or it may be a complete surprise. Your initial step will be the same in either instance. It would help if you learned everything you can about the company in its current stage.
Complete an evaluation of the company’s value factors and drivers, operations, finances, staff, facilities, legal position, and industry. An action plan should be prepared based on the analysis. This measure should be taken regardless of what happens to the company in the future.
2. Examine its prospects
Determine whether the business can be sustained successfully by a company founded on the decedent’s expertise or existing ties.
Consider the company’s future revenue possibilities as well. You want to ensure the company can create net income under your supervision. Working with a business consultant can objectively evaluate the company’s current viability and future possibilities.
3. Inform current customers and vendors of any changes.
Business inheritance brings about significant changes for you, but it also impacts the lives of the company’s current employees, suppliers, and lenders. Each party is accustomed to dealing with the previous owner, and change is difficult!
Even if you want to reduce personnel or change vendors, you will want to preserve transparency and strong relationships with these people because they store business information. Employees, for example, may have been heavily involved in implementing previous marketing campaigns or developing new products and services. Their experiences might teach you much about the industry and what to do next.
4. Determine its worth.
All assets in the estate, including the business, must be valued for tax purposes. Although taxes are normally calculated on the value of the assets on the date of the estate owner’s death, this is not always the case—a crucial factor for inherited enterprises with uncertain long-term prospects.
If the value of the assets declines within six months of the decedent’s death, estates might choose an alternate valuation date. You want to make definitive judgments regarding the company’s future when you know where things stand after six months.
5. Consider the company’s financial requirements.
An old adage about family businesses goes, “The first generation builds the business, and the second makes it successful.” Success is defined differently by each generation. When you take over a family business, you may desire to expand the business or even pivot to a different product or service. New business owners generally have lofty goals. However, it is critical to be realistic about future intentions, particularly financial ones.
6. Understand the Transfer’s Specifics and How They Affect the Bottom Line
You should also thoroughly comprehend the financial and tax implications of the move. Transfers can be structured in a variety of ways, with far-reaching consequences. This is where expert accountants, lawyers, and bankers may provide critical counsel to maximize positive outcomes for all parties and minimize unfavorable outcomes.
Business inheritance can raise a slew of problems and uncertainties. It’s challenging to deal with the emotional impact of an inheritance after losing someone you care about, let alone the legalities and financial ramifications of business ownership.