How do you recover after a failed business venture?
Recently, the long-anticipated and oft-discussed “Spiderman: Turn Off the Dark” opened on Broadway, pushing at long last past a seemingly never-ending parade of technical and safety issues that pushed its official debut back time and time again. It seemed nearly impossible to get the show up and running, however, and many thought the venture would fail. What happens if a business outing DOES fail, and how does one recover from the financial – and emotional – blow?
The former question is, of course, much easier to answer than the latter. First, take stock of what you have left after all of your affairs are settled. Whatever you have left in savings is going to need to be rationed carefully until you find another means of earning an income. There are steps you can take to prepare for this moment, but if it has arrived, all you can control at this point is the future. After carefully budgeting your monetary reserves, make a list of different jobs for which you’re qualified, and start hunting as soon as possible. While this is an unfortunate economic climate in which to search for a job, it is all the same important that you secure another means of earning money, so you don’t ruin your credit.
As for how to recover from the emotional and mental setbacks caused by such a turn of events, there are several ways to help come to terms with it. First, do what you can to keep busy. It can be incredibly disappointing for something you worked so hard on to fall short of your expectations and hopes, but spending your days contemplating what happened will only make things seem worse. In addition to getting your career back on track, you can keep busy by taking up hobbies you enjoy, since you have a little extra time to do so. Also, don’t be afraid to reach out to those you trust – a support network could help to greatly improve your outlook.
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What options are available for financing the sale of my business?
There are numerous financing options, but the one you choose (or rather, the one you should choose) is reliant upon several important factors. These include the purchase price, tax implications, your cash needs, who the buyer is (as in, if they’re relation, a corporate entity, an outsider third party, etc.), and your flexibility.
First, you could choose to accept payment for your business in the form of a lump sum of cash. However, this may be very difficult for most buyers, and will likely necessitate potential buyers to take out a loan in order to afford doing so
Instead, you could opt to act as creditor, allowing for you to accept payments in timed installments. Make sure, if you take this route, to include reasonable interest rates, and to make everything about the transaction official through written documentation and contracts. Though this option may make the sale itself easier, it may also cause you to be more concerned than anticipated about its future. So be careful of those feelings of attachment.
If the interested buyer happens to be a corporation, you could enter into a tax-free stock swap. You would basically be given stock in the corporation acquiring your business, in exchange for your control. There are tax guidelines that have to be followed in order for such a transaction to be considered legal, as well as security regulations to which you must adhere. If you wish, you could turn your business into a partnership with the interested corporation, in exchange for tax-free partnership interests.
Choosing either a private annuity or self-canceling installment note could give you both a steady income stream as well as tax advantages. Private annuities are usually used for business sales happening between family members, but keep in mind that no matter who’s involved in them, they can’t be secured by notes or collateral items without losing a lot of the income tax advantages inherent in such transactions.
Talk to both a financial advisor and a tax advisor before deciding on a plan of action. Know the benefits and the risks of your decision before committing – especially since such a transaction could have serious implications in your estate planning.
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I need reliable lawyers and accountants to help me start up my business. How can I find the best ones?
Accounting, financial planning, taxation, insurance, investment management and general law are some of the very complicated areas in which you must be detailed and knowledgeable. The problem is, most people aren’t. So in order to properly run your business, you may want to consider hiring advisors that specialize in these areas.
Know what your needs are before you begin searching – the right person can really help your business grow to the next level.
Ask others for referrals to advisors with which they’ve worked previously and recommend without reservation, or listen to word of mouth from respected colleagues. You could also turn to a local professional association or referral agency. The yellow pages or local advertising may also help.
Have questions prepared, and topics you wish to discuss ready for your meeting. Ask about their experience, licenses, areas of specialty, references and education.
Once you’ve finished meeting with a potential advisor, take stock of the situation. Do you feel as though the advisor was listening to you, and understanding what you had to say? What sort of suggestions did he or she offer, if any? Do they know about the industry in which you work, and how to work with other advisors? And, perhaps most important, do you feel comfortable with this person as an advisor?
Depending on how you answer these questions in your mind, you may or may not have found a person qualified and suited to help your business develop.
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How can I make sure my business stays in the family, no matter what?
You have several options that will ensure your family’s legacy in your business. The best fit depends on the kind of ownership you have in the business, and whether or not you wish to maintain control until you pass away. The type of business in and of itself may also dictate your options.
If you have a sole proprietorship, you have more options than you would if yours were, say, a partnership or corporation. If there’s a preexisting buy-sell agreement between multiple owners, this would also affect your ultimate decision. Each option available has tax implications, and no matter what, your estate planning ideals will have to come into play.
Should you maintain ownership until death, you can simply use your will to transfer your business to family members. Valuation discounts may be available to lower taxable values, but this option should be well-funded all the same (likely with a life insurance policy).
But if you’re looking to transfer ownership while you’re alive (for example, if you wish to retire, or are rendered disabled) you can still structure the transfer while maintaining control, until the transition reaches a point where you can remove yourself entirely from the business. Lifetime gifts of interest to family members are an option. The amount of the gift, and the recipient, may mandate a state and/or federal gift tax. You could also combine gifting with outright sale of your interests (a sale that could take place while you’re alive, or after your demise). A trust could facilitate a transfer, as well as family limited partnership.
If the aforementioned buy-sell agreement applies to your situation, you can simply establish in it that your portion of the business be transferred to one or more family members. Be careful who you choose, however – a buy-sell agreement is binding, and you cannot option your portion of the company to an outsider once it is set (with few exceptions, depending on the terms under which the agreement was made).
Talk with a tax attorney for specific information about your situation, and the tax implications of each of your options.
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What are the advantages – if any – to organizing a business as a family limited partnership?
There are several benefits to making your business a family limited partnership, or FLP.
For starters, the interests in a family limited partnership can be gifted at values falling lower than the full market value of their underlying assets. Through this (as opposed to a direct transfer), you could stand to save big on gift and estate taxes. And in the event of your death, your interest in the partnership can be included in your overall estate.
An FLP offers you control of the business during the transfer, and allows you to even shift income and future appreciation to other members of the family, with similar tax benefits.
Lastly, you may be restrictions applied to limit a partner’s ability to transfer interest, so that if you want, you can maintain your family’s control of your business.
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What, exactly, is a buy-sell agreement?
It’s a contract that outlines a potential future sale of your business interests. A buy-sell agreement can also provide for your future purchase of a co-owner’s interest, should they opt to leave or pass away. They are also called buyout agreements or business continuation agreements.
If you’re the seller, you and the buyer enter together into a contract that transfers business interests from you (or from your estate) in the event of a predetermined event such as retirement, disability or death.
Buy sell agreement Life insurance is usually used to fund a this kind of agreement l– in an ideal situation, anyway. Once the business’ value is determined, you – along with your advisors and other involved parties – determine the best way to pay for the transaction, and the triggering actions for your particular business situation.
A funded buy-sell agreement can help easy any fears you may have about your business, if you’re worried about the affects of a co-worker’s departure or death. Your buy-sell agreement will enable you to buy your partner’s share, so that you can feel security in the continuation of your business. This will also avoid you having to enter into potentially awkward business dealing with the survivors of your partner (should death be the reason they can no longer fill their position).
Buy-sell agreements do come with drawbacks, naturally, such as limited freedom to selling your former co-worker’s portion of the company to an outsider. Talk with an attorney, as well as a trusted financial professional, about whether a buy-sell agreement would be right for your business.
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Can I hand over my business after I pass away through my will?
Your will can, in fact, be used to transfer business interests after you pass away. Your will can also be used to dictate long-term plans and instructions for your business. For example, if you wish to see one of your children take over, especially if they are presently involved in how your business is run, you may specify how you wish for their assumption of control to be handled. If you don’t outline such things, your business could be distributed evenly amongst your children, even if that is not your ultimate wish or desire for your business.
The downside to including your business in your will is that the full value of your interests could be taxed as part of your taxable estate. If you’ve planned and accounted for additional liquidity – by, for example, having a life insurance policy in place – you won’t have to worry. But if not, your heirs may have to sell your business just to handle the taxes.
Any assets dealt with by means of a will are subject to probate. Probate is the court-supervised process that administers a will, and can be both time-consuming and expensive, as far as processes go. Also, the probate process could cause interruptions in the business itself, which may parlay itself into loss of both employees and customers if too much confusion and inefficiency in the transition of power. Ambiguity regarding who handles what, and how operations are handled going forward, could also create a clientele/staffing hemorrhage. Probates are public, which would not only potentially add to the commotion, but would air everything for the world to see – even matters which you would prefer to keep confidential.
Speak with your lawyer, and a trusted financial professional, about your business interests, and how best to handle your affairs after your demise. There are other ways to handle a transition of power beyond using your will and risking the probate process. However, all of your options require time and careful planning, so the sooner you start the process, the better it will be for all concerned parties.
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Now that I have my business, I need to find employees. Where are the best places to look for qualified people to work for me?
In today’s economic climate, it may seem easy to find potential employees, due to widespread unemployment. However, the key in searching for new hires is to make sure you have the right people, instead of merely filling positions arbitrarily.
Before you start publishing advertisements for openings, take time to think about the kind of people you want to hire (in regards to both minimum experience levels and personality traits). Also consider the overall work environment you hope to create.
Where you advertise will be dictated in large part by the kind of people you wish to employ. If you need younger, part-time workers to help out with administration, waiting tables, or other such tasks, posting flyers around area high schools or college campuses could help. Also reach out to these institutions to find out if they have job search Web sites (many do), or specific majors/schools that may have students interested in learning about your business. For example, if you run a restaurant, a local culinary academy or in-university cooking program may have students interested in helping out while learning about the business end.
Timing is also incredibly important. Many prospective candidates look on the weekends, or in the evening during the week. So make sure not to neglect them – if you’re posting to a site such as Craigslist, post at a time when those job seekers will see your ad at the top. Look not only into sites that cater to your specific business, but into general job posting sites as well – especially if people are unemployed, they will be checking wherever they can. Newspaper ads can also yield results, but make sure you choose a paper with a wide circulation.
If you’re looking for someone to fill an executive or managerial role, you may want to consider employing the help of a head-hunter or professional hiring firm to assist in finding you the right person. These can be expensive, but the more important the position, the more worthwhile this expense may be in the long run.
It may be wise to consider mining personal resources for employees. For example, recommendations from family, friend and other business associates could work out, as you are getting someone to interview held in high esteem by someone you trust. Also, there are professional, governmental, community and religious organizations with which you may be involved, where you may find someone (or receive a recommendation for someone) interested in applying.
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I’m trying to figure out the worth of my business, as it pertains to my estate (as well as for gift tax purposes). How can I calculate this?
To begin, you should not try to figure this out on your own, without the help of a trusted financial advisor. One of the main reasons is that the IRS could opt to challenge your results, and they concede themselves that there is no true fair market value (FMV) in existence for a business. There are, however, appraisers whose job it is to determine the value of a given business. Talk with your CPA, as they may be one. If not, they may be able to recommend someone who is, and having a reference from someone you trust will make this process that much easier on you.
An FMV, according to federal estate and gift tax regulations, is (to greatly simplify their official definition) the price a potential buyer or seller would come to together, not the one that the owner would agree to or the buyer would be willing to put forth for the business independently.
There are many factors that contribute to the value of a business. The RIS identifies some as particularly significant, including the nature of the business, the company’s history, the economic outlook (both on a general level, and in relation to your business’ industry), earnings capacity, book value, the general financial condition of the company, and several others.
Since these factors are ever-changing, don’t rely upon older appraisals for newer transactions.
Since it is such a nuanced and complex amount to arrive at, only an appraiser is truly qualified to examine all of these factors, to arrive upon a fair and researched FMV for your business.
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How can stop-loss insurance benefit me, as an employer?
To understand the benefits of stop-loss insurance, you must first understand the definition of stop-loss insurance.
Stop-loss insurance essentially pays the medical bills of your employees after you (the employer) have paid a specified amount. If you opt to self-insure, stop-loss insurance will protect you from having to pay on extremely large claims, beyond that of the predetermined coverage limit. You would wind up saving on more traditional plans for your employees as well.
Stop-loss insurance is a very cost-effective option, to consider in opposition to more traditional health insurance plans. However, they do come with inherent risk, if an unanticipated and larger number of employees fall ill to a critical point. Those bills could clean out your medical fund, or even go beyond that maximum amount. You leave yourself open to liability in this instance.
Outside of that circumstance, though, stop-loss insurance can offer you financial protection. But you need to figure out if this system is best for your employees, by assessing the risk of your employee pool (factoring in, for example, the median age of your workers). You may find that a group plan is less costly in opposition to the risk you’d take on with stop-loss insurance.
Take the time to research health insurers who offer stop-loss insurance, as not all of them do. Also, compare costs and coverage options, to make sure that your needs, in addition to your budget, are met.
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