Chapin Hill Advisors

Family Business Planning

For many entrepreneurs, the business is like a baby and needs care and feeding. As the business grows, it may need additional capital and the owner sometimes funds these needs personally, either directly or by a guarantee. Therefore, many business owners are hesitant to invest their excess cash in either the stock market or illiquid investments as they never know when the business may need infusions of capital.

A thriving business can comprise the lion’s share of the owner’s net-worth. The business and the company’s pension or 401(k) plan as well as any corporate real estate is typically held in the founder’s name leaving a lopsided balance sheet between spouses. All too often the home or homes are held in joint name. These ownership structures can leave the family with a potential estate tax issue.

Another issue for future planning is most business owners tend to run a number of expenses through their business. While these may be legitimate business expenses, it is quite possible that some of these expenses will continue into retirement but no longer be deductible. Assessing the after-tax costs of these expenses is a critical part of determing “how much is enough” either after the business is sold or transferred or while the owner begins to work less. 

Families grow geometrically as each generation may have multiple children adding family members to the clan. Even businesses with terrific growth rates may not grow fast enough to keep up with the financial needs of the next generations. Each generation should have wealth creation as part of the mandate. Encouraging this mindset can often be implemented with the assistance of outside advisors. 

Family business planning takes these issues and wide range of additional concerns into account. We begin by running projections forward for each family unit to assess what it is they need to support their individual family unit’s financial goals and objectives in the future years. Inflation, tax and the potential for return on capital invested are taken into account.

Once each family unit can clearly assess their future needs, it is easier to craft a plan for the future of the business, business assets and the wealth creation needed to fund future generations.

Estate planning is an important part of family business planning and figuring out which assets should be re-titled, whether trusts are implemented, valuations assessed and other strategies implemented to help the family minimize the potential for estate taxes to create a liquidity squeeze on the business.

If the business will be sold or transferred, the business may consider the next steps and enter into succession planning which can and should be executed over a number of years. The earlier one starts this process, the easier it is to make decisions and take advantage of favorable estate planning techniques and other tools to ensure the future success of the business and the financial security for the extended family. 

Having a plan provides clarity to all and helps create a roadmap for future decisions. Chapin Hill helps the family business owner(s) figure out ‘how much is enough’ and then work to mitigate other risks which can affect the family’s financial security. Chapin Hill helps the business owner implement recommendations and introduces our trusted resource network to assist in execution of the plan.