(From our school science we might remember that crystalline solids have a characteristic melting point, the temperature at which the solid melts to become a liquid, that critical point when solid becomes liquid.)
There is a point in any family business when the decision is made, whether that business will be taken over by the next generation (or by its employees) …or the business will be sold. (Let us not even consider the glum possibility of a ‘forced sale’ due to bankruptcy or liability; divorce of partners; sudden death or incapacity of owner; or the more complex issue of a merger.)
Following the covid crisis, many family owned firms have found it difficult to continue with "business as usual" and partners have had to make some difficult decisions about the future.
When the family business is part of a ‘planned sale’ to someone outside the family, that business is on its way to becoming a liquid asset for the family members owning a share of the business.
At this point, the strategies of wealth protection and wealth management change dramatically.
When a buyer is found, the sale of a business can still take several months, and during that time many small and critical decisions are made during negotiations of the sale.
(If one thinks in terms of this process as science, it is a slow ‘melting process’ rather than a quick ‘zap’.)
During the sale of a family business, a multitude of ‘mini-negotiations’ are taking place.
For one example - Once a buyer is identified…What is the value of the remaining inventory? The office furniture? The goodwill? The contracts? The buildings and equipment? What will happen during the transition period? What role, if any, will the previous owner(s)/partners continue to play and for how long? What future roles will employees play in the new business? What are the tax ramifications of decisions? Are there existing employment contracts to be honored? Are there licensing agreements? Creditors? Tax liabilities?
These are just a few questions.
And then there are the decisions of what will be done with the now ‘liquid’ assets. Will funds from the dissolution be distributed? To Whom, When and in What proportion? If so, what are the tax consequences? Will some funds be placed in trust? If so, what will be the terms of the trust(s)? Will some funds be invested?
The possibilities are as endless as there are ways to utilize money.
One thing is certain. Converting a small business into ‘liquid assets’ is a complex endeavor.
Each step of the process is best handled with the continuing assistance of competent financial and legal advice.
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