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Meeting the needs of family businesses

Jul 23, 2024 | RBC Wealth Management


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Because your business may be your largest investment, financial guidance is recommended through all stages. Read the Investor’s Edge article on meeting the needs of family businesses.

Business owners discussing finances

Family-owned businesses are considered main contributors to the world economy. According to the U.S. Census Bureau, 90% of U.S. businesses are family-owned, yet only 30% make it to the next generation.

Owning a business is hard work that requires careful planning. Because your business may be your largest investment, it’s important to work with your financial advisor throughout all stages of development — from startup to being established and onto maturity.

As a business owner, the challenges you face in planning for retirement are more complex than for most people. Advanced planning with support from financial, tax and legal professionals is critical to achieving your short- and long-term goals.

A financial advisor can offer guidance and support in a number of ways to help you expand and protect your business. Your financial advisor can help you focus on serving your customers and taking care of your employees, managing your cash flow and liquidity needs, as well as determining the value of your business for sale or developing a plan to pass your business along to your heirs.

Some specific strategies for achieving your goals as a business owner follow.

Contingency planning

Your business faces risks and challenges so it’s important to have protection plans in place for unforeseen expenses, changes in leadership or the loss of a key employee. Some contingency and protection options to consider include:

  • Disability plan — A plan in case you become incapacitated or disabled. Typically documents the critical functions of the business and identifies who will carry them out, specifies the power of attorney and contains sufficient disability insurance coverage.
  • Life insurance coverage — Recommended as the death of a business owner is a tax-triggering event that may undermine your plans — or force family members to sell important assets. Coverage may help your family with living expenses, pay off business debt and keep the business running.
  • Shareholders’ agreement — Created to govern the relationship between shareholders regarding voting and other control provisions, buy or sell agreements between major shareholders and rules for how new shareholders, including children, are brought into the business.
  • Diversification — Taking some money off the table during periods when your business is prospering and diversifying it into other assets, such as investments, real estate and life insurance.

Financial resource planning

From smart financing choices to having a cash flow management plan, having access to banking and lending at competitive rates can help accomplish the strategic goals you have for your business. Managing your banking and lending needs with agility may be critical to the success of your business.

Retirement plans for employees

An employer-sponsored retirement plan benefits you, your employees and your business. Multiple options exist and the plan you choose depends on the size of your business, how it is structured and how much money you can afford to put aside.

Valuation of your business

Informal valuations are a start, but more formal options are reasonable for learning the true value of your business and to help you determine if you’re on track to meet your financial or retirement income goals. Many factors go into calculating the value of a business and it’s especially important when you begin preparing your exit strategy. Knowing the value of your business will not only help you with transitioning out of the company for the right price, but it will also help plan your family finances once the transition is accomplished.

Succession planning

It’s never too early to start thinking about this step, but with careful planning, you can better achieve your long-term goals for the business, your family and your retirement. Several succession strategies go into a business ownership transition plan. Whether your business is a farm or ranch that has been in the family for a century, a restaurant that has spanned three generations or a first-generation professional services consultancy, some basic tips:

  • Develop a transition plan in advance
  • Make sure it is in writing
  • Address funding for retirement
  • Include an estate plan

A common consideration in a succession plan is whether your business will transition to family or non-family. For family, the options are to sell, gift, bequest or some combination. A non-family transition may be to sell the business to a co-owner, employee(s), employee stock ownership plan (ESOP) or third-party.

Business owners often underestimate how long it takes to create a succession plan. If you don’t have one, now is the best time to start thinking about it. Begin by writing down your goals and getting professional advice on setting up a business transition plan.

Retirement planning

In addition to these planning ideas to help you protect, expand, sell or pass on your business, don’t forget to have your own retirement plan. A well-structured retirement plan is the foundation of long-term financial security. Also, review your plan regularly to make sure it remains current with the changing circumstances in your life.

Your will and estate plan

As a business owner, you may be pressed for time, but there’s one more plan you need to attend to. You should create and then regularly review your will and estate plan — making sure they are both in sync with your business succession plan as well. This planning will limit disagreements among your heirs and successors.

Since your business is likely your greatest asset, creating a personalized plan for what happens next builds confidence and helps you capitalize on opportunities. 


New Investor's Nook

Tips for sustainable side gigs

Second jobs or personal businesses, often called side gigs, are a growing trend. While side gigs may be secondary to your primary employment, many factors go into making them successful and sustainable. Here are some tips:

  • Know yourself — What are you passionate about and how can you use it to create a business or find another job?
  • Have a vision — What do you want to achieve? Establish this before wasting time and money on the wrong thing.
  • Watch for burnout — A side gig can take a few hours a week—or more. Establish a schedule and boundaries to stay balanced.
  • Think retirement — It may seem far off, but side gigs can help you save for retirement and be an eventual source of income. A financial advisor can help you plan for your retirement goals.

You don’t have to plan alone. Your financial advisor can assist you today and throughout your journey.


Read more in the Q3 2024 edition of the Investor's Edge >

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Wealth planning

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