The Herald Bulletin

January 16, 2012

Emmett Dulaney: Have you planned your exit?

By Emmett Dulaney
For The Herald Bulletin

ANDERSON, Ind. — Mark Motluck, business law professor at Anderson University, points out that 76 million Americans were born between 1946 through 1964 and many of these baby boomers are business owners who will be retiring and leaving the business world over the next 20 years. If you are one of the boomers, he asks, have you planned your exit strategy?

Motluck further elaborates that many business owners simply plan to pass on the business to next generation family members.  Many successful businesses boast of the generations that have made it successful and how long it has remained in family hands. However, this may or may not be a good strategy. Before agreeing to pass on your business to your children, you need to critically address these five questions with an objective eye:

There are many factors to consider with a decision this important. If you have decided to move forward and transfer/sell the business to your children, you must seek legal and financial counsel. There will be income tax and possibly estate or gift tax implications that will need to be considered. For example, if you transfer the business for less than its fair market value, it will trigger gift tax implications. However, if you start the planning process a few years before the complete transfer of ownership and power, you may be able to eliminate some or all of the adverse consequences.

Your attorney will need to draw up the sales contract and all necessary documents. For a matter this delicate and important, it’s best to treat this in as much an arm’s length manner as possible. That is, separate this business matter from your family affairs. In fact, having separate attorneys to represent each of the parties is the most prudent course of action. Above all, don’t risk family harmony.

Columns from the Falls School of Business at Anderson University appear Tuesdays in The Herald Bulletin. This week’s columnist, Emmett Dulaney, teaches marketing and entrepreneurship.