Meeting the Challenge Head On

Author: Keith Huggett

Running a family business can be both fun and challenging. One of the challenges you face is proper financial and tax planning. A family business faces the same rules and requirements as any other business, but because the people involved also have a personal relationship, some business best practices can get overlooked.

Watch for these common errors that many family businesses make:

• Don't mix business and family finances: Setting up a separate business entity and bank account is important for keeping business expenses separate from personal ones. The type of business entity you select will depend on how many people own the business and how you want your taxes to be handled. Setting up a separate business will also help protect you from personal financial liability that stems from the business.
• Make sure you implement employment agreements: Every employee, even family members, should have an employment agreement in place. This not only helps keep a level playing field among all the employees, but also helps guide you in the future when circumstances may change.
• Procure and maintain a business license: Depending on the type of business you have and where your facilities are, you may need a business license from local or state authorities. This is true even if you operate from a home office.
• Have a succession plan: All businesses should have a succession plan in the event that an owner becomes incapacitated or passes away. In a regular business, the line of succession might be clear based on titles and seniority. However, in a family business, this can be even more confusing because business successors are also simultaneously heirs. Having a clear plan in writing is the best way to avoid disputes and keep the business running smoothly.

There are a lot of great benefits to keeping business in the family, just remember to follow business best practices.

If you need help setting up or maintaining your family business, call the professionals at The Tax Office, Inc. We can help you with everything including selecting the right business entity, outsourced bookkeeping and tax planning and preparation. Contact us today to schedule a consultation.