Securing the future of your Family Business
When people think about this it is often with a long term view to maximising the potential value on a sale or exit, but it is just as important for business owners to think about the shorter term and protecting themselves and their family from being entirely dependent on the family business – particularly in the event of ill health, death, or where there are young children in the family.
The New Year is often a time when people review their own position and whilst not an exhaustive list the following are all good areas to consider:
- Review your remuneration strategy to ensure funds are being extracted from the company in the most tax efficient manner and more income ends up in your hands not the tax mans!
- Review your personal debts – would re-mortgaging be cheaper or could surplus cash be extracted from the business to clear personal debts. There is a potential window of opportunity to do this before 6 April 2016 at a reduced cost before the increased tax rates on dividend income come into force.
- Build income generating assets outside of the business – commonly this is in the form or stocks and shares, or property. The government’s recent announcements increasing the tax burden on buy to let landlords have weakened the appetite for some investors but for others this will still remain an attractive proposition. Using your ISA allowance for investments in stocks and shares is tax efficient, or perhaps the new Help to Buy ISA’s are worth considering if there is a member of the family seeking to get on the property ladder.
- Increase your pension fund – with the recent changes to pension legislation, personal pension pots have become far more flexible and can now be a useful planning tool.
- Life assurance / income protection policies to pay out to you / your family in the event of a qualifying event to provide either a lump sum or regular income.
- Business protection – equally important is to consider the business having appropriate insurance cover in the event of an individual being unable to work. This may be to provide it with sufficient cash to assist it through a short period and maintain the family income until you, or another key employee are able to return to work, or in the event of death it may provide the company with a lump sum to enable it to buy back your shares and provide your family with a cash sum whilst leaving the other shareholders to carry on with the business.
- Make sure that your will is up to date and reflects your wishes so that your assets are distributed to your beneficiaries in the way you wish.
- Power of Attorney – a power of attorney lets you plan what you want another person to do for you in the future should you become incapable of making decisions about your money / property, welfare or both.
- Shareholder agreement is a vital document if you are in business with other shareholders to formally agree on what happens to the shares, and the mechanism for valuing them in the event of a death, or exit whether due to serious illness or other reasons.
- Retaining senior business management – every business should seek to retain its key employees and a family business is no different. Ensuring that these individuals are properly rewarded and incentivised to remain with the business is important – and from my experience their value is likely to be appreciated even more during a period of family trauma
If you’d like to discuss the future of your family business in more detail, please don’t hesitate to contact our expert family business team.