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Janice France-Pettit: Finances and the family-owned business

Posted: May 7, 2010 4:59 p.m.
Updated: May 8, 2010 4:55 a.m.
Managing finances can be one of the most time-consuming parts of running a family owned business. Finances are vital to your company's growth and success.

Yet, they can take a lot of time and effort, and potentially cause disputes among family members who may disagree about financial procedures and systems.

You may wish to consult a financial advisor or local banker for advice - this objective, third-party input about how to set up financial practices may be invaluable when you have different opinions and personalities involved.

The following are additional helpful tips to help you organize the finances for your family owned business:

Keep separate accounts
Keep your personal bank accounts separate from your business bank accounts. This applies to savings accounts, credit cards and lines of credit. If you mix them, you may have more bookkeeping and accounting issues and possible tax issues, as well.

If the amount of accounting and bookkeeping needed seems overwhelming, consider hiring an outside bookkeeper to help with the extra work involved in keeping business books and home finances.

Streamline your finances
Consider keeping business and personal accounts at one bank. By housing your business and personal banking in one place, you may be able to streamline your finances by seeing your entire financial picture.

With services such as online access and phone banking, you can transfer funds between accounts, enabling you more options for managing your money. Your banker will also have a big picture of your finances and be better able to advise you.

If your combined account balances are high enough, you may be able to benefit from different banking programs for high balance holders.

Obtain money for growth
Another challenge in managing a family business is obtaining money for growth. When you see prospects for expansion, begin to plan for it and consider techniques for financing.

Planned financing may be a combination of borrowing from a local bank, securing funds from friends, borrowing the cash surrender value of life insurance policies owned by relatives and/or working with a lender and the U.S. Small Business Administration to obtain a business loan.

Effective budgetary controls and sound financial practices are important in seeking growth funds.

Such controls help the managing family member determine the company's needs and lenders regard them as evidence of good management.

Formalize a succession plan
Long before you plan to retire, work with an advisor to put in place a formal exit strategy and buy/sell agreement among family business partners.

Decide to whom to pass ownership of your business, whether it is an outsider or a family member. If you decide to pass it to an outsider, have a plan for how to pass on information, especially that related to finances.

If you want your business to remain in the family, decide how far down the family chain you want to spread ownership. Arrange for an independent appraisal of the business to determine its worth, and don't forget to consider tax implications.

With carefully planning, the finances for your family owned business can run smoothly and be an asset to help your business grow.

The foregoing article is intended to provide general information about tax planning and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.
Janice France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own opinion and not necessarily that of The Signal.


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