Years of dedication have gone into shaping your business into a legacy. But what’s next for your food or beverage company when it’s time to step down?
Proper succession planning can mean the difference between a successful transfer and a business that fizzles after decades of hard work.
Whether your goal is transferring to the next generation, selling to employees or finding an external buyer, doing your due diligence early will maximize the value of the business and help ensure continuity in the future.
Tax-efficient family ownership transfer strategies
The U.S. tax code offers powerful tools for transferring family business ownership to family members, helping to reduce the tax burden. Here’s how:
Gradual transfer through gifting. Annual exclusion gifts and lifetime exemption strategies are a good fit for food businesses with fluctuating valuations. For example, you may opt to time gifts during lower valuation periods, such as after equipment investments or during temporary market downturns.
Installment sales and self-financing. Many food businesses generate consistent cash flows that support seller financing arrangements. Installment sales can allow your family members to acquire ownership over time while continuing to provide you with steady retirement income.
Charitable strategies for tax efficiency. Charitable remainder trusts and charitable lead trusts have substantial tax advantages while supporting philanthropic goals. These strategies work best if your business has appreciated significantly over the years.
Estate planning integration. Your asset structures require careful coordination to maximize tax efficiency. The key is aligning business transition timing with overall wealth transfer objectives.
Many food business owners also own production facilities, cold storage facilities and distribution centers. In this case, you may want to coordinate business succession plans with real estate ownership structures to optimize both operational efficiency and estate tax outcomes.
For multi-generational family businesses, consider strategies that transfer ownership directly to grandchildren while providing income streams to the intermediate generation. This approach can eliminate an entire layer of estate taxation while maintaining family control.
Preparing for external buyers
We recommend that food businesses maintain at least three years of audited financial statements before considering a sale. Focus on normalizing earnings by removing excess owner compensation, one-time expenses and family member employment costs.
Compile all relevant documentation, including:
- Regulatory certifications
- Inspection histories
- SOPs for food safety and quality control
- Customer contracts and pricing mechanisms
- Supplier agreements and commodity hedging strategies
- Equipment maintenance records and replacement schedules
Remember, buyers pay premiums for businesses positioned for growth. Document expansion opportunities, including:
- Additional product lines or private label capabilities
- Geographic expansion potential
- Technology investments
- Market trends supporting your product categories
Securing your legacy
Your food or beverage business represents years of passion, innovation and hard work. Whether you’re planning a family transfer or positioning for an external sale, the key to preserving your legacy lies in starting the succession planning process early. Don’t wait until retirement is imminent; begin building your succession plan now to maximize value and secure the future you’ve worked so hard to create.
Not sure where to start? Reach out for help planning a smooth exit, knowing that the business you’ve worked so hard to build has the right leadership in place to move forward.