Business Exit Planning

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Top 10 Deal Pitfalls

This white paper describes 10 deal pitfalls (in no particular order) that each have the capability to derail a deal, some more effectively than others. All of these pitfalls are fairly common, although some owners are prone to fall into more pits than others. As you examine this list, you will notice that all of the deal pitfalls are owner failures. It is rare that a financial or legal glitch is so significant that it can not be overcome by an owner's transaction advisory team. Before and throughout your Exit Planning Process, refer to each of these pitfalls to assure that you don't fall into the. Avoiding these pitfalls will allow a smooth exit on your terms. 

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Successful Transfer of The Family Business

​What could be easier than transferring your family business to its natural successor: your heirs apparent, your offspring? If some of your first guesses were peace in the Middle East, increasing honesty in politics, or convincing a teenager that he or she might be wrong about something, you have probably witnessed your share of family-business transfer disasters. 

Statistics widely quoted by Estate Planning writers indicate that "only" one-third of all family-owned business are passed on to the second generation, and "only" 10% of family-owned businesses are transferred to a third generation. Experience indicated that those statistics are wildly optimistic and overstated.

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Business Growth by Acquisition

This white paper is dedicated to the owner seeking to exit his or her business in style. Acquiring other businesses is a tool that business owners use when growing their own businesses. The operative word is growing since the purpose of growing your business through acquisition is to increase the value of your existing business.

Recall the first three Steps of The BEI Seven Step Exit Planning Process:
1. Set Exit Objectives
2. Determine the value of your business
3. Increase the value of your business

This white paper will help you accomplish Step Three.

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Value Drivers

Have you ever wondered why one business has buyers lining up to pay top dollar while another sits on the market for months or years? What do buyers look for in a prospective business acquisition?

The characteristics buyers seek are called Value Drivers,  and they must exist before the sale process even begins. Value Drivers are characteristics of a business that either reduce the risk associated with owning the business or enhance the prospect that the business will grow significantly in the future. It is your job as the owner to create value within your business prior to a sale.

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Inevitabilities

Owners begin thinking about the Exit Planning Process when two streams of thought begin to converge. The first stream is a feeling that they want to do something else besides go to work every day: either they would like to be someplace else-doing something else-or they simply no longer get the same kick out of doing what they are doing.

The second stream is the general awareness of the following:

-They are close to financial independance
-They are making significant strides toward reaching financial independance.
-They can achieve financial independance today by selling their business.

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Headwinds

Bicycle riders appreciate the importance of avoiding headwinds on a long ride, especially as they approach the end. A headwind causes a rider to either expend more effort or take more time to arrive at a destination. When a rider is already tired, neither option is appealing.

A bike race and owning a business are remarkably similar when it comes to headwinds. As we anticipate the end of our business ownership journeys, the headwinds we face today require us to devote more effort or time to exit our business in style.

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Exit Paths for Business Owners

When business owners start to think about exiting their companies, the number of possible Exit Paths can seem limitless. In reality, there are only eight:

1. Transfer the company to family member(s).
2. Sell the business to one or more key employees.
3. Sell to employees using an employee stock ownership plan (ESOP).
4. Sell to one or more co-owners.
5. Sell to an outside third party.
6. Engage in an initial public offering (IPO)
7. Retain ownership but become a passive owner.
8. Liquidate

Which of these Exit Paths do owners intend to use?

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Business Valuation: 5 Reasons Why It's Important

Few business owners relish spending money on something unnecessary. For most owners, hiring an expert to estimate the value of their companies falls into the unnecessary category. Thus, it is no surprise that owners typically respond to an Exit Planning Advisor's recommendation to get an estimate of value for the company with some variation of, "Now? But I'm not planning to leave for years," or "I built this company, so I know what it is worth better than any so-called expert."

Before you join these owners and scratch business valuation off of your Exit Planning to-do list, consider the following five reasons why you should put an estimate of value at the top of your list.

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C vs. S Corporation

"I expect to exit my business down the road, but is there anything I need to do now?"

Business owners often ask this question because they suspect that they should be doing something about exiting their businesses right now. These owners are on to something.

Someday, every owner will exit his or her business, either by choice or against his or her will (e.g., death, incapacitation). Far too many owners take a reactive approach to Exit Planning, beginning the process only after their exits. Additionally, since busy business owners tend to forego the planning necessary to exit their businesses on their terms, only the most motivated owners spend time or money planning for their departures.

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Business Continuity Planning

Successful owners are usually optimistic people, somewhat averse to dwelling on the more unpleasant aspects of Business. Contemplating one's demise certainly qualifies as an unpleasant aspect. Consequently, advisors tend to use a lot of softer phrasings when they talk about business continuity. They ask, "What happens if the owner 'passes on' or 'leaves the scene?"' They talk about the consequences of an owner's death on the business in theoretical, third-party terms: "Should an owner die,..." Unfortunately, these oblique references gloss over the central fact that you, the owner, must take care of business now in case you (rather than someone anonymous third party) die tomorrow.

This white paper discusses business-continuity planning in a way that you may not expect. Typically, when owners think of business continuity, they do so after being prompted by an insurance or legal advisor who warns that unless they take prudent measures, they will leave their families unprotected in the event of death or permanent disability.

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Employee Incentive Planning

As business owners plan to exit their businesses, they must confront the challenge of incentivizing employees - specifically, management - to stay with the company after they have left. Having a strong established, and committed management team to take the reins once an owner has exited is becoming more of a prerequisite that a luxury when selling or transferring the business to a third party. There are several reasons why a strong management team is essential to a successful business exit for owners.

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ESOP Opportunities

An Employee Stock Ownership Plan (ESOP) is a tool business owners use to achieve many common Exit Objectives: 1) Provide partial or full liquidity for existing shareholders; 2) Leave the business gradually; 3) Provide employees with a stake in the future growth of the business; and 4) Keep the business in the community. File Name: wp_esops_opportun...
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Using Short-Term Key-Employee Incentives to Increase Sale Price

One of a business owner's greatest challenges is to attract, motivate, and keep key employees. As owners approach the end of the marathon of exiting their business, often tired and distracted by everything they've done, they begin to assume that it is no longer worthwhile to keep and motivate key employees. However, keeping key employees is not only worthwhile but also necessary if the business is to be sold at the highest possible price.

A basic premise of key-employee incentive planning is to keep the key employee as a long-term, contributing member of the company. Consequently, incentive plans incorporate relatively long vesting schedules and provide benefits that are relatively moderate in the early years but become substantial as the years pass (usually after the employee has participated in a plan for at least five years).

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Transferring Wealth to Children: A Primer for Business Owners

Both business owners and non-business-owning parents want to transfer a monetary legacy to their children, if possible. However, business owners are different in the tools they can use to transfer wealth.


Whether you own a business or not, the fundamental questions are the same:
1. How much wealth do you want to keep?
2. How much wealth do you want the kids to have, and how much is too much?
3. Which tools minimize the estate-and-gift-tax consequences of transferring wealth?

Business owners have to put those questions in the context of their Exit Objective" "How much money do I wish to have after I exit my business?"

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Transferring Your Company to Key Employees

Owners wishing to sell their business to management - specifically, key employees - face two unpleasant facts: Their employees have no money (most likely) and they cannot borrow any, at least not in sufficient quantities to cash out the owner. Thus, each transfer method described in this white paper uses either long-term installment buyout of the owner or someone else's money to complete the buyout. The last method discussed - the modified buyout - uses both an installment buyout and someone else's money.
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