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The Seven-Year Itch & How To Scratch It

It was true love right from the start. You've been committed from day one. You've been faithful. You've given completely and selflessly. The more time you've spent, the more your passion has grown. But lately, youve experienced a bit of a plateau. The feelings are still there but the flames have subsided. 

Ladies if this describes your experience as a business owner, you are not alone.

Marko Mijuskovic, BA, MBA, MSIS, CExP, is here for you. If your thoughts have strayed to retirement planning or even a business exit, Marko can help you see the larger financial picture. This includes thinking through accounting, legal, managerial, and tax concerns - just to name a few - to create a comprehensive exit strategy. Accounting for all the aspects minimizes the potential for any unpleasant surprises that can compromise a promising deal at the last minute.

One of the more common of those surprises is taxes. "I have dealt with a number of business owners from a wide range of categories," said Mr. Mijuskovic. "Regardless of the line of work they're in, what a great majority have in common is an incredible amount of concern for ensuring their businesses' success after they leave. But very few understand, much less have planned for, the tax implications and exposure that exiting a business can create.

Not only is taxation a reality, but a business exit that is improperly structured can also create multiple taxable events, leaving the seller to take as much as a 50 to 70% tax hit. That can also force the company to generate approximately 50 to 70% in additional revenue to make up the deficit. For most Hawaii businesses this can be a difficult if not impossible goal.

"After the blood, sweat, and tears of a lifetime spent building a business, nobody wants to see all of their hard work wind up in the hands of the tax collector. By getting a head start on tax planning, this situation is completely avoidable," reassures Mr. Mijuskovic. "Taxes are a reality, but if a company sale is properly structured, tax exposure can be kept to the legal minimum."

Charel Au, one of the CPA's with whom Marko works very closely, notes "Business owners need to understand that they are selling much more than ownership of shares in their company. We often include intangible assets, non compete agreements and an employment contract to ensure a smooth transition to the new owners. Each component has unique income tax characteristics to both the buyer and seller, which create opportunities when crafting "the deal". Marko and his team have experience in these areas and help you focus on maximizing the net cash flow rather than the gross sales price. 

Building a successful business doesn't happen overnight. Neither does building a successful exit plan. "Besides taxes, there are many other areas that require thoughtful consideration. From clearly defined partnership agreements to choosing the right management team, "Successful business exit planning isn't something you start today and finish tomorrow," said Mr. Mijuskovic. "Business owners should start to think about their long-term plans five to seven years out. Comprehensive planning can help to create the most efficient tax shelters, and ensure that the owner's wishes for the company's succession and future and put in place."

Scott W. Settle, Managing Principal at Settle Law, who has worked with several of Marko's clients on business legal issues, says "Many people start their business with great ideas and a handshake, but that rarely enough for a long-term business plan. New business owners should think ahead and answer the "what if" questions that will invariably arise in the future. For example, what happens if the partners disagree on a major business decision? What if a partner wants to retire or quit? Or what happens if a partner dies or becomes incapacitated from a medical issue? Does the spouse take over, or another family member? While that person may be related and they certainly have a vested interest in the ongoing success of the business, they may lack the qualifications and experience to contribute meaningfully. Planning for these sorts of contingencies up front, and documenting the solutions, can be invaluable to the continuing viability of the business."

"With so many women-owned and managed businesses here in Hawaii, I see a real need to educate my clients about retirement and business exit planning," said Marko. "So to help local business owners learn more about how to plan for a successful exit, I hold free monthly Business Planning Seminars." Those in attendance will learn the steps necessary to create a retirement or business exit plan, including determining an exit timeline, guidance on how to appraise the value of an indivu=idual or businesses' assets, information on protecting those assets, and in the case of company, securing continuity plan options for internal and external transfers of ownership. Quips Marko. "The sooner you scratch that itch, the better you will feel."

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Hawaii Business Magazine - August 2018
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