5 Things to Consider When Transferring Your Business to Family Members

5 Things to Consider When Transferring Your Business to Family MembersSelling your business isn’t a process that any Seller should jump into lightly without a business broker, and that fact holds true even when it comes to your loved ones. Below are five of the most crucial factors to consider when selling a business or transferring to a family member.

#1 The All-Important Buy-Sell Agreement

One of the single most valuable tools that’s available when selling your business is a buy-sell agreement. In a brief explanation, this fundamental document puts everything into writing. Majority of people are tempted to skip a contract when the business is family owned, but that doesn’t mean they should.

You should have a professionally created document in place when selling your business to a family member that outlines the following:

  • Valuation of the business.
  • Who is to be kept on the payroll and the amount he or she will receive
  • The amount being paid for selling the business
  • What level of commitment you’ll have in the business once the transfer has taken place

#2 The Benefits of Gifting

One beneficial option to consider is gifting. One benefit to gifting is that it works to reduce your taxes on the real estate, while it also allows you to maintain some level of control over the business.

#3 Seller Financing and Transferring the Family Business

Another option would be selling your business to a family member. Occasionally, Sellers will consider a private annuity, which allows for payments to be spread out over a considerable time period, such as to the end of your life from the family member buying the business.

#4 The Self-Canceling Installment Note

You can also take the route towards using an installment sale. If it happens that you’re a selling parent that has deceased before the payments have all been made for the sale, then the remaining debt may be attached to your will. Having this arrangement in place can keep your other children from paying excess income tax on your estate.

#5 Keep the IRS Happy

When a selling a business to a family member, IRS will look more closely into the sales. That reason alone is a good enough reason to establish a real and accurate valuation for your business with a professional business broker.

The best way to proceed when navigating the process of selling or transferring your business to relative is to have a business broker help you work out the particulars. Selling your business or transferring to a relative doesn’t have to be very difficult or cumbersome process. The process will be a lot smoother than you may expected during the time a family member is buying the business working with the business broker.

Copyright: Business Brokerage Press, Inc.

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