By Maurie Cashman
If you are like many business owners you might ask: Why Ownership Transition Planning for me? Here are just a couple of good reasons:
- A majority of closely held and family owned businesses will change hands within the next five years;
- Many Business Owners may not have taken active steps to transition out of ownership.
- You may have simply been too busy working in your business to be working on it;
- You may be unsure of how to begin Ownership Transition Planning or who can help you. And you would be right to ask those questions so letâ€™s address a few.
We encourage you to work on – not in – your business. Knowledge and preparation can possibly mean millions of dollars to you when you transition ownership of your company. Start Ownership Transition Planning today and you can help to avoid the sad, and common, fate of the hypothetical business owner of Vandelay Industries.
Scott Vandelay was the owner of a thriving distribution company and called to meet with me. What I assumed would be a business planning meeting, turned out to be a â€œHow do I get out of this business right nowâ€ meeting. As successful as he was, he was tired of the government regulations, changing tax codes and daily grind of running a multi-million dollar company.
A sale to a third party was not an option because Scott was not willing to stay on after a sale – and he had failed to develop a strong management team, which any savvy purchaser would require as a condition of purchasing the company. Transferring ownership to a group of key employees was also out of the question. None had been groomed to take on this type of responsibility and nothing had been done to fund this type of buy-out.
Scott was too young to have business-active children, so his only option was to liquidate.
Scottâ€™s highly profitable company had little worth beyond the value of its tangible assets. After the sale of those assets, dozens of the employees lost jobs, the business disappeared, and Scott left millions of dollars on the table.
How can you help to avoid Scottâ€™s fate? By engaging in an Ownership Transition Planning process to meet your objectives. An Ownership Transition Planning process begins by asking yourself the questions that follow. Your Ownership Transition Plan will begin to be created as you answer each of the following questions:
- Do you know your retirement goals and what it will take – in cash – to reach them?
- Do you know how much your business is worth today, in after-tax cash?
- Do you know how to increase the value of the business?
- Do you know the best way to increase the income stream generated by your ownership interest (now and in the future)?
- Do you know how to transfer your business to family members, co-owners, or employees while lowering taxes?
- Do you know how to sell your business to a third party and possibly lower your taxes?
- Do you have a plan to help secure finances for your family if the unexpected happens to you?
- Do you have a continuity plan for your business if the unexpected happens to you?
These questions are simple to ask, but to answer them requires thought and action on your part.
Creating and implementing your Ownership Transition Plan may be the most important business and financial event of your life. Iâ€™ll be presenting at the International Exit Planning Conference next month. I hope to come back with some new and interesting subjects to share with you.