What you need to do now to prepare for your company's
future!
Whether your reason is
retirement, health, lifestyle or simply "cashing in," making
a decision to sell/transfer your business to a new owner is momentous.
If you are nearing retirement, you've likely spent most if not all of
your career building up the business - so handing it off to someone
else is no small task.
There are numerous
considerations involved in making
the most of your divestiture in the business. These involve a wide
array of personnel issues that are important in a successful
transition. As such, a team of highly experienced financial, legal,
marketing, human resource, wealth management, real estate and other
professionals may be necessary, depending on your situation.
What are
some typical succession/transfer options?
There are numerous
structures for transitioning your business, each with pros/cons that
help to determine a solution for your particular situation. Here are
six of the most common:
- Sell
to a family member(s)
- Sell
your portion to your partner(s)
- Sell
to your employees via an Employee Stock Ownership Plan (ESOP)
- Sell
to your management team via a management buyout
- Sell
to another company in your industry
- Sell
to a private investor
You may have started
the thought-process already in choosing one of the above. It may even
seem that your choice is naturally best - until you speak with an
experienced CPA and attorney who point out many key issues that
could actually sway the decision to another option.
How can
a CPA help?
It has been said
"If you take care of the finances, everything else will take care
of itself." This saying can be applied to business succession
planning, in that financial issues typically drive the transaction.
An experienced CPA,
such as MyCFO,
can help with these issues when selling to outsider buyers:
- What
is the value of your business?
- If
you plan to sell (vs. transfer), how can you maximize the purchase
price?
- What
is the best payment structure, given your income needs, taxes and
the financial ability of the buyer?
- If
you have partners, how should your buy-sell agreement be
structured?
- What
financial statements are necessary for buyers, and how many years
of history?
- Are
financial statement projections important?
- What
are the most effective ways to minimize taxes on the transfer?
- How
can your personnel be prepared for the transition?
… or addressing key
items when transferring to a family member, such as:
- If
you intend to transfer to family, what are the gift planning and
your income planning considerations?
- If
maintaining ownership within the family, what are pros/cons of
entity selection such as Family Limited Partnerships or Limited
Liability Companies?
- How
to recapitalize equity?
- Should
assets be transferred into a Grantor Retained Annuity Trusts?
- How
can you effectively mentor your next-in-line?
- If
you have multiple children but only one is getting the business,
what are options for equitable estate planning?
What are
other short- and long-term considerations?
If you are many years
from retirement or transitioning the business, a succession
plan is still a good idea. Consider the impact of a disabling
accident to yourself or other top management; how would it impact the
business? Would revenues decline, employees leave, customers depart and
overall value plummet? Key-man insurance may be an option but is likely
only part of your solution.
If you have partners,
do you have a buy-sell agreement in place? How will remaining ownership
replace the expertise of the departing partner?
There are many
scenarios that support having a succession
plan, even when cashing out or transferring may be planned for
decades away. Consider
working with your CPA to develop a succession plan, no matter your
time horizon. For example, if your timing for divestiture is a couple
years away, your CPA will likely suggest working on your bookkeeping
and financial statements to help achieve the best valuation. Further,
succession planning shouldn't be a one-time event instead an ongoing
process that needs to be tied to day-to-day operations.
How can
MyCFO help you?
According to the U.S.
Small Business Administration, in the next 10 to 15 years approximately
70% of privately owned businesses worth an estimated $10 trillion will
exchange hands. This exchange will represent the largest
intergenerational transfer of wealth in U.S. history.
The key question is
how will you prepare for the succession of your company? The
professionals at MyCFO
can offer invaluable expertise in this process. Contact
us today for a free initial consultation!
