In our last report we discussed a new concept in Business Succession planning, the Wait and See Buy-Sell. To refresh your memory, the Wait and See is considered a combination or hybrid of the two basic plans already discussed, The Entity where the business is the buyer AND the Cross Purchase wherein the owners are the actual buyers. In essence, the Wait and See DELAYS such decisions until the actual triggering event occurs. So now lets continue our discussion on this important alternative by examing its’ advantages.
1. One critical factor is the FLEXIBILITY of the Wait and See Plan. In other words, if the owners can’t decide between the business buying or the owners buying, then the Wait and See offers that alternative to decide if the owner or the business should be the buyer at a later date. This is a major factor because at times indecision creeps in and no action is taken. Indecision is one factor that hurts many businesses because if no decision is made and a triggering event occurs, then it is usually more costly to initiate any plans.
2. A second major advantage in a Wait and See Plan is that although a decision is postponed, the plan document still GUARANTEES A BUYER.
3. In addition, through the Wait and See, CONFLICTS OF INTEREST CAN BE ELIMINATED.
4. Furthermore,by selecting this plan or any plan for that matter, STABILITY OF THE BUSINESS IS MAINTAINED.
5. Another factor in the Wait and See is that it will help improve the CREDITWORTHINESS OF THE BUSINESS. In fact having ANY PLAN will help boost the creditworthiness of your Business.
6. IF FUNDED, it will PROVIDE THE NECESSARY CASH TO INITIATE THE BUY OUT. Please note that while we have not discussed this yet, FUNDING your Buy Sell is extremely important. After we discuss all Buy Sell Plans, we will share FIVE different options you have to fund the Buy Sell. In closing this point, let me reiterate that you can have no plan, write a buy Sell BUT NOT FUND IT or write the Buy Sell and fund it.
7. With a Wait and See, even though a decision is not chosen, the business owners can KEEP THE TAX STATUS OF THE BUSINESS. So no matter if you have a Sub S corporation or a Partnership or whatever form you’ve chosen, the Wait and See allows you to maintain that status.
8. Tax Laws as well as Tax Rates do often change. By postponing a decision between the business or the owners doing the buy-out, IT COULD AFFORD THE OWNERS THE OPPORTUNITY TO SAVE ON TAXES. For example, let’s say the Entity Plan was chosen. When a triggering event occurs, you may find that the Business is in a higher tax bracket. Thus, it would make sense to switch to the owners with the objective of saving tax dollars.
We now have covered three forms of Business Succession. We’re making great progress. Next we will discuss the disadvantages of the Wait and See program and then describe three more plans.
In closing, let me offer an idea. As you read these articles, many questions may come to mind or you may simply want more detailed information on a particular topic. I have a full library of hundreds of different articles on Buy Sell Planning. You can receive these reports via email. Just simply email a request on a particular topic.