Exit Planning


Issue 232: Loss of Key Talent: You, The Owner
If owners die or become disabled prior to their planned exits, their companies face many of the same problems they would have had a key employee died. In this issue we outline the problems that can confront both sole-owned and co-owned businesses and, more importantly, outline suggested remedies to those problems.

Issue 231: My Lawyer Told Me Not To Do It
Many professional advisors caution owners to avoid transfers to insiders as too risky. In this issue, a case study illustrates how one owner created a plan to transfer his company to a child and key employees based on the three questions every owner in this situation must answer: When do you want to leave? How much money will you want or need when you leave? What do you want to do for your key employees and other children?

Issue 230: Can You Sell Your Company to an Outside Third Party?

Issue 229: Bonus Incentive Plans for Employees: What's the Point?
Rewarding employees for performance and wanting to stay competitive in the marketplace are good reasons to install bonus incentive plans, but the best reason for these plans is: to motivate employees to reach an owner’s goals. Details of successful plans vary but all directly link increases in cash flow or income to the employees’ rewards.

Issue 228: Cash Flow Forecasting: The Ultimate Reality Check
Whether owners plan to sell their businesses to third parties or transfer them to insiders, they must create accurate models of future cash flow. Third party buyers will likely base their offers on some multiple of cash flow and insiders (who rarely have other sources of cash) will use cash flow to pay sellers for their ownership.

Issue 227: The Avoidable Failure To Act
Owners have three exit planning options: 1) wait for a buyer; 2) liquidate; or 3) design an exit plan and execute it. The first assumes that a buyer will appear, bearing lots of cash at the moment when the owner decides to leave. The second appeals to few owners, but is often necessary if company cash flow is declining and shows no sign of improvement. This article urges owners to start immediately to create exit plans designed to give themselves the most profitable exits possible.

Issue 226: Six Estate Planning Questions for Business Owners

Issue 225: Buying Out Your Partner
In this case-study-based article, readers learn what tasks they need to accomplish whether they are the owner who wants to exit or the co-owner who wants to stay active in the business. We examine the remaining partner’s alternatives and what must be done to lay the foundation for any lifetime exit.

Issue 224: The Importance Of Time In An Employee Buy Out

Issue 223: Why Owners Choose Not To Sell
There are good reasons owners don’t sell their businesses. And then there are the not-so-great reasons: procrastination, fear of the unknown and fear of losing the known. Procrastination applies to owners who don’t know how to plan, who imagine that they can always sell at a future date or who think their businesses are so strong that no planning is necessary. This article urges readers who recognize themselves to call you and outlines ways you can help them.

Issue 222: Fraud: Do You Know It When You See It?

Issue 221: Quantify Your Resources: The Ultimate Exit Test

Issue 220: Preparing For Your Exit: Planning For Your Inevitable Business Exit
Is planning for the most important financial event of your life worth your time? Most owners answer "yes" once they know that Exit Planning is not mysterious, time-consuming, nor just a clever way to sell you another product. It is, however, a means to help owners achieve financial and lifestyle objectives: 1) Leaving on the date you choose; 2) Receiving the amount of cash you want; and 3) Choosing your successor.

Issue 219: Eight Ways to Exit Your Company
Given the right circumstances, one of eight paths to leave your company may be appropriate for you. The process of determining exactly which path is best presents an obstacle to many owners. If, however, you wish to "leave your business in style," we suggest that you work through this three-step path selection process.

Issue 218: Which Comes First? Estate Planning or Exit Planning?
While there isn’t one right answer, owners who see that the two processes share the same goals begin to appreciate how they can leverage the time and money they spend on their Exit Plans into the design of their estate plans. To help make the choice about where to start, we urge owners to consider two issues: 1) Estate taxes are (currently) easier to avoid than income taxes, and 2) estate planning techniques often involve funding from life insurance proceeds whereas exit planning techniques often involve the owner’s own funds.

Issue 217: The Advantages of a Well-Conceived Buy-Sell Agreement

Issue 216: The Essential Business Agreement
A case study shows owners what can happen to their companies if they fail to paint a clear picture for both departing and remaining shareholders of what will happen when one leaves. It includes a quick explanation of lifetime and death events and closes with a note that, in the case of buy/sell agreements, nothing is better than out of date.

Issue 215: Elements of a Plan to Sell to Insiders
Time, cash flow and tax minimization appear on our list of Ten Elements that help owners transfer their businesses to insiders in a way that keeps owners in control until they are paid their sale prices. This issue is a great way to introduce owners to the many facets of an insider transfer plan.

Issue 214: Sticking a Toe (or two) in the Exit Planning Pool
In the previous two issues of this newsletter, we attempted to dismantle the most common objections owners make to undertaking the planning necessary to exit their companies successfully. Assuming we were successful in persuading you that exit planning not only helps your business while you are in it, but is also the best way we’ve found to leave your company to the successor you choose, on the date you choose and for the amount of cash you want, how do you, as an owner, jump into exit planning?

Issue 213: Top Excuses Owners Use To Avoid Exit Planning

Issue 212: Top Excuses Owners Use To Avoid Exit Planning
Like every owner, you will one day exit your business--voluntarily or involuntarily. On that day you will want to attain certain business and personal objectives: the first (and usually prerequisite to all others) is financial security.

Issue 211: Creating Value in Your Business to Get Top Dollar When You Leave It
Using a case study, we ask readers to consider why a buyer would likely treat two similar companies very differently: buying one and not even considering the other. The difference is in the strength of the Value Drivers one owner has made the effort to install. This issue describes the most common Value Drivers and recommends that readers contact the newsletter sender for more information.

Issue 210: Why You Need To KNow The Value of Your Business Today

Issue 209: First Things First
Unless you set and prioritize your exit goals or objectives, you may have too many, or they might conflict, but in either case you may not make much headway. Prioritizing your objectives will help you choose your overall path and gives you a framework for decision making.

Issue 208: Getting Started In The Exit Planning Process
You may be able to envision your life beyond business ownership, but you may not have a clear picture of how best to "leave your business in style."

Issue 207: Former Business Owners Have No Regrets
Three former owners answer the question, “What is life like after you leave your company?” Each exited in a different way and each crafted a unique post-business life, but all agree that there’s more to life than running a successful company.

Issue 206: Is Exit Planning Worth the Time and Money?
Investment banker Kevin Short describes how Steps 1, 2, and 3 of The Seven Step Exit Planning Process ™ can separate sale transactions that close from those that completely derail. Short uses examples from his practice to show how exit planning could have saved owners millions of dollars.

Issue 205: Wealth Preservation Planning: Step Seven of The Seven Step Exit Planning Process
Unless owners plan for the protection of their wealth before they have it in hand, they cannot take advantage of all of the potential benefits of the tools in the wealth preservation arsenal. A case study illustrates how an owner used one of those tools, a Grantor Retained Annuity Trust, to achieve financial security, provide for his family and minimize taxes.

Issue 204: Business Continuity for Co-Owners: Step Six of The Seven Step Exit Planning Process
A case study illustrates the dilemma that many owners face when they (or a partner) want to leave the business only to find that the buy-sell agreement they drew up years ago makes it impossible to do so. Readers are urged to review four key provisions in their agreements to determine if those agreements treat both the remaining and the departing shareholder fairly.

Issue 203: Business Continuity for Sole Owners: Step Six of The Seven Step Exit Planning Process
A case study illustrates what can happen to an owner’s business and his or her family when that owner fails to make contingency plans should she or he not live long enough to leave the business in style. This article outlines some simple steps sole owners can take to ensure that the companies they worked so hard to create don’t disappear if they do.

Issue 202: Transferring the Business to Insiders: Step Five of The Seven Step Exit Planning Process
Transferring your business to insiders (family members or key managers) is not without risk, but those risks can be minimized given ample time to do careful planning and to build business value. This issue addresses the three biggest owner risks and outlines ways to minimize each.

Issue 201: A Sale To A Thrid Party: Step Four of The Seven Step Exit Planning Process
In this issue you'll find an outline of the primary reasons owners choose to exit via sales to third parties. Before you consider that option, you and your company must be prepared for the sale and the M&A market should be favorable. Creating a written plan that minimizes taxes, allows you to focus on company profitability, and holds your advisors accountable for achieving your goals is key to the successful third party sale.

Issue 200: Building Value: Step Three of The Seven Step Exit Planning Process
This provocative article reminds owners that buyers pay for business value—not for the selling owner’s expertise—and that Exit Planning is the process owners use to make themselves “inconsequential.” In addition to building value, Step Three involves protecting value and minimizing taxes.

Issue 199: Determining Business Value: Step Two of The Seven Step Exit Planning Process
Knowing the value of your company is a fundamental, indispensable element of sound decision making because it provides you: 1) an objective indicator of how much value needs to grow before exit and how long you must work before exiting; 2) the ability to monitor progress toward your exit; and 3) a basis for estimating (and minimizing) tax consequences of exit path alternatives. This article includes a case study and information about various types of valuations.

Issue 198: Setting Exit Objectives: Step One of The Seven Step Exit Planning Process
The starting point for any plan is to define its goals. In Step One, owners answer three questions: 1) How much cash do they need to exit in style? 2) When do they want to exit? and 3) Whom do they want to succeed them? A case study illustrates why setting objectives, understanding how one objective affects another, creating a plan, and taking action to reach goals are critical components of a successful exit.

Issue 197: What's In A Good Exit Plan?
All owners will one day exit their companies and all want that exit to be on their terms. This article introduces steps in The Seven Step Exit Planning Process™ and describes the features of an Exit Plan that make a successful business exit more likely. These include: 1) making and executing a plan well before the desired exit date, 2) putting in place measurable goals, but retaining flexibility; and 3) using a proven process.

Issue 196: Does Value Building Equal Exit Planning?
Building value is a great use of an owner’s time, but it isn’t Exit Planning. Value building as part of Exit Planning covers four important issues: current value, value needed at owner’s exit, developing tactics to close the gap between current and desired value, and creating a strategy to transfer value in the most tax-efficient way possible.

Issue 195: Time: Too Much or Too Little?
This issue is perfect for owners who object to Exit Planning because they believe they can’t sell their companies today or anytime soon. A case study describes an owner who realized—only after being approached and rejected by a buyer—that his failure to create a management team and growth plan, to install comprehensive systems, and to increase cash flow left him little to sell. This article encourages owners to start working now to make their businesses attractive to buyers.

Issue 194: Why Exit Planning? Why Now?
Many owners who wouldn’t dream of operating without business plans completely overlook how Exit Plans enable them to take action in the face of unanticipated events. Only exit planning offers the opportunity to exit in style despite the glut of sellers, dearth of buyers, and vagaries of the market and investment world. This issue is chock-full of important statistics.

Issue 193: Value Driver Six: Benchmarking and Measuring Success
This article completes a six-issue series on Value Drivers. Benchmarking and Measuring Success refers to: 1) Tracking revenue to new or returning customers or markets; 2) Measuring and evaluating customer retention; 3) Measuring sales activity and effectiveness; 4) Identifying critical industry metrics; and 5) Defining and measuring success.

Issue 192: Value Driver Five: Financial Measurement and Mangement
In this issue we concentrate on Value Drivers related to financial measurement and management. These include: 1) Understanding and using existing financial information; 2) Managing and reducing company debt; 3) Implementing financial controls; and 4) Increasing employee productivity.

Issue 191: Value Driver Four: Leveraging Human Resources
In this issue we look at how owners can build business value by improving the productivity, efficiency and quality of their employees. Suggestions include: 1) Connecting reporting responsibilities/duties and revenue generation; 2) Creating employee scripts; 3) Implementing new employee training systems; 4) Connecting employee activity and company success; and 5) Transferring responsibility to employees. Due to space limitations, only items 1, 4 and 5 are discussed in detail.

Issue 190: Value Driver Three: Systemize Internal Operations
Best of the Best companies systemize every internal operation so that they perform tasks in the same way—every time. Because owners can be so overwhelmed by the number of operations needing attention that they fail to address any, we limit our discussion to just two: creating a system to collect and use customer feedback and diversifying vendor and supplier relationships. Our goal is to motivate owners to create internal operations that: 1) Are written and communicated clearly; 2) Are adhered to by all employees; 3) Produce consistent results; and 4) Will remain in place after the owner leaves.

Issue 189: Value Driver Two: Tactical Planning
With your help, owners not only identify the areas of their businesses that need attention, but also choose strategies to address these shortcomings. In this case-study-based issue, we illustrate how asking owners a few questions can prompt them to start the job of picking tactics. This issue covers several common tactics including: 1) Diversifying the customer base; 2) Expanding sales to current customers; 3) Setting goals and holding people accountable; 4) Creating a consistent sales and marketing message; and 5) Tax planning.

Issue 188: Value Driver One: Putting Business Fundamentals In Order
The first order of business when creating a Value Building Plan is to put one’s Business Fundamentals in order. These are the housekeeping activities that reduce exposure to risk of loss so that as owners work to increase value, mechanisms are in place to protect existing and future business value. Business fundamentals include: 1) Ownership rights and responsibilities; 2) Facilities management; 3) Competitors; and 4) Employee errors.

Issue 187: Close the Gap Between What You Have and What You Need
This issue wraps up the Gap Analysis discussion (Issues 185 and 186) and kicks off the six-issue series dedicated to Value Drivers (188-193). It describes how, using the Value Driver Analysis, graphic Assessment and Value Driver Report, you can help owners create a plan to bridge the gap between current and desired business value. The Value Driver Report: 1) Outlines what must be done to reach goals; 2) Makes specific recommendations about how to achieve each task; 3) Designates the person(s) responsible for accomplishing each task; and 4) Holds everyone accountable to a timetable.

Issue 186: Closing The Gap Between You and Your Successful Financial Future
In this issue readers are introduced to owners who—given enough time to create Value Building and Exit Plans—can not only exit successfully, but are numbered among owners of the “Best of the Best Companies.” In newsletter issues 188-193, we’ll discuss the Value Drivers that make these companies so valuable. This issue also introduces readers to BEI’s Value Driver Analysis and Value Driver Report—tools available exclusively through you—designed to help them close their gaps and join the ranks of the best.

Issue 185: The Gap Between You and a Successful Exit: Do You Know Yours?
This issue picks up the story of fictional owner Peter Daniels with a quick review of his situation: a $2 million gap between his current and desired business values. We ask readers: 1) Have you quantified the amount you will need to leave your company in style? and 2) “If not, how can you possibly take concrete and immediate steps to close the gap between what you have and what you’ll need?” We encourage readers to start today to take charge of their own and their companies’ financial futures by working with you to create a value-building plan.

Issue 184: Recent SBA's Rule Changes Make Exit Possible For More Owners
This issue describes how recent (late 2009) and temporary changes to the Small Business Administration’s 7(A) loan program make acquisition financing easier for borrowers, provide clarity and additional security for lenders, and significantly increase availability of SBA financing.

Issue 183: Quantify Your Resources
In this issue, we see how fictional owner, Peter Daniels, tackles Goal Three: Quantifying Resources. We observe how Peter and his advisor quantify Peter’s resources and use that number to determine the gap between the amount of money Peter will need and what he has today. All owners must quantify their resources so they can determine first if there is a gap, and then how to close it.

Issue 182: Set Your Exit Objectives
Goal Two (for 2010) is to Set Ownership Objectives. We illustrate the importance of this goal by revisiting fictional owner Peter Daniels (introduced in issue 180) who sees the value in Exit Planning, but fails to implement a plan. One ownership objective is to determine the amount of cash owners will need (to support the post-exit lifestyles they desire) from the sale/transfer of their companies. We suggest that owners work with their advisors to create a Financial Needs Projection that includes five important factors. To owners who question the value of setting Exit Goals when they aren’t ready to exit we suggest that: 1) most owners need to grow business value significantly in order to exit with the lifetime income they desire, and 2) growing value takes time.

Issue 181: Can You Work Any Harder?
2010 is a great year for owners to work smarter, not harder, by asking “How does this action move me closer to my goal of leaving my company when I want, for the amount of money I want, and to the successor I choose?” Goal One (of three) is to make the company more valuable/saleable. We suggest that readers contact you for BEI’s 16-question pamphlet titled “Meeting Today’s Business Challenges” to help them identify their greatest opportunities to increase business value.

Issue 180: A Good Year to Avoid Last Year's Mistakes
This issue sets the stage for the next three (181-183) by introducing fictional owner, Peter Daniels, and observing how the most common owner mistake—procrastination—affects him. To counter the many reasons owners use to justify inaction, we ask a series of disturbing questions including: If you believe the business is as ready for sale as it can be, but it fails to attract an offer sufficient to provide you with financial security, what will you do? We urge owners to read the next three issues in which we break Exit Planning into three bite-sized pieces that can be consumed, one by one, and modified as necessary.

Issue 179: Problem: The Loss of Key Talent -- You!
In the previous issue of this newsletter, we used the example of Rick (the dad) and Josh (the son) White to illustrate the financial problems that can occur if the "big bucks" owner of a company dies first. An equally serious problem can arise if the co-owner who is key to running the company dies.

Issue 178: Problem: Company's Loss of Financial Resources
Rick White and his son Josh thought they had done everything necessary to preserve their business (Great White Way) in the event one of them died. They created a buy/sell agreement, provided for an accurate valuation and fully funded the arrangement with life insurance on each other’s lives.

Issue 177: Do You Really Need A Buy/Sell Agreement?
In the last issue of this newsletter, we presented a number of reasons why a business continuity (or buy/sell) agreement can be one of the single most important documents that you, as a closely held business owner, will sign. Today we continue the discussion of buy/sell agreements by looking at how these agreements can protect rights among shareholders, provide a means for joint owners to clarify a common vision with regard to the future of the business, and establish a market for an owner’s stock at an agreed-upon price.

Issue 176: Do You Really Need A Buy/Sell Agreement?
In our last issue of this Newsletter, we discussed the problems that can arise if a business continuity (buy/sell) agreement designed for one event (usually the death of a shareholder) is called upon to manage the more likely event of a shareholder’s departure during his or her lifetime. Lifetime departures may occur due to the retirement, termination, divorce or bankruptcy of an owner.

Issue 175: Your Buy/Sell Might Be Great If You Die, But What Happens If You Don't?
If you share ownership of your company with another person, you likely have a buy/sell (or business continuity) agreement. Generally, owners draft those agreements because they want to control the transfer of ownership should one of them die or become disabled. Most agreements are set up so that life insurance will fund the purchase of the deceased/disabled owner’s interest if one of these events occurs.

Issue 174: Business Continuity Planning: What Difference Does It Make?
None of us likes to think about what might happen to our businesses or our families if we were to die or become disabled. Owners who do let that thought cross their minds stay awake nights worrying about it, push the thought to the back of their minds or engage in serious business continuity planning.

Issue 173: When Selling To Insiders Cash Is King
If you contemplate transferring your business to an insider (employees, children or co-owner) and you want to get paid the value of your business, then, generally speaking, the value of your business cannot exceed four times or five times the true cash flow of the business.

Issue 172: Does a Transfer to Insiders Suit Your Objectives?
As we’ve discussed in the previous issues of this newsletter, insider transfers are not only doable, but, when compared to outside sales, they may be more likely, less risky and more lucrative than many owners imagine. Doable, less risky and more lucrative for whom? Let’s look at owners whose objectives might be met by transfer to insiders.

Issue 171: Time is Essential in the Transfer to Insiders
In this series of articles about transfer to insiders, we identified a number of elements that are part of the well-designed transfer to insiders. The first element we identified was the qualifier: Time.

170: Elements of a Plan to Sell to Insiders
In the previous issue of this newsletter, we compared the attributes of sales to third parties to those of transfers to insiders. We looked at the often-overlooked risk involved in third party sales and the equally overlooked benefit of owner control and payoff in insider transfers.

Issue 169: Can You Sell Your Company To An Outside Third Party?
We talk to business owners every day who “plan” to exit their companies via a sale to a third party because they believe that they’ll get more cash up front (and more overall) than if they sell their companies to insiders (family members or employees). Consequently, they believe there is far less risk selling to a third party sale than to insiders.

Issue 168: Time: Too Much or Too Little?
Active business owners seldom slow down. We all know that the only things likely to reduce your pace are death or terminal burn-out. This is not to imply that you are not well intentioned; quite the contrary. You are so well intentioned that you’ve taken on more tasks than you can possibly complete.

Issue 167: Indecision: The WRONG Decision
“I haven’t decided what I ultimately want to do with my business, or when I want to exit, or how much money I’ll need, or whom to sell to, so how can I plan my exit? Besides, I don’t want to exit right now.” If you’ve said this, or thought it, you are not alone. Many business owners are either overwhelmed with the thought of exiting or are so busy fighting daily business fires that they think they cannot plan their exits.

Issue 166: Announcing a Tool For Business Owners: Meet Today's Challenges and Exploit Today's Opportunities
Over the past few months we have shared with you a number of ideas about how you and your company can approach both the challenges and the opportunities that this economy has thrown at all of us. We’ve discussed specific issues such as fraud, and more general issues such as preserving value, focusing on cash flow, increasing revenue and keeping all actions consistent with your ultimate goal: leaving your company when you want, to the successor you choose, for the amount of cash you want or need.

Issue 165: Fraud - Do You Know It When You See It?
The subject of employee dishonesty is a delicate one. Owners generally want to trust their employees, and given all the other battles owners fight on a daily basis, they are often not as vigilant as they can or should be. Vigilance requires an investment of time and money in return for an uncertain payoff. So let’s look at a typical fraud scenario.

Issue 164: Preserve and Protect Your Business On All Fronts
In the previous three issues of this newsletter, we outlined the main areas where business owners who want to both survive in today’s economic climate and emerge from it poised for growth (or sale) can focus their energies.

Issue 163: Tough Times Crown Cash Flow As King
In the previous issues of this newsletter, we outlined two of the four areas where business owners who want to both survive in today’s economic climate and emerge from it poised for growth (or sale) can focus their energies. As you may recall, the areas we have already talked about are creating value and creating revenue. Today, we discuss the third area: quantifying cash flow.

Issue 162: Increasing Revenues During Tough Times
In the previous issue of this newsletter, we discussed the critical importance of creating value in your company – even during tough economic times. Why should you worry about creating value when you’ve got more pressing fires to fight? Well, if you hope to sell or transfer your company when tough times end, your company must be valuable enough to attract a buyer and to finance a comfortable life after the sale.

Issue 161: While Managing Short-Term Issues Don't Forget Your Endgame!
In the previous issue of this newsletter, we outlined the four areas where business owners who want to both survive in today’s economic climate and emerge from it poised for growth (or sale) can focus their energies.

Issue 160: Designing Smart Strategies to Meet Today's Economic Challenges
During the past several months, we have been helping business owners meet the challenges presented by recent changes in the economy. In this and the next several issues of The Exit Planning Review™ we will share with you what we are learning from owners and their advisors across the U.S. about which strategies are most effective. Before we begin, however, we hope you will share with us how your company has been affected, how you are responding, and how we can help you meet those challenges.

Issue 159: Economic Downturn Gives Owners Time to Prepare for the Recovery of the M&A Market
The current recession has given all business owners, quite literally, pause: pause in growth, pause in hiring, pause to reconsider exactly where our companies are heading — or need to head —if we are to meet our owner-based goals.

Issue 158: Economic Downturn Gives Owners Time to Work on Value Drivers
In past newsletters, we have discussed value drivers: the intrinsic characteristics of a company that buyers look for when deciding what company to buy and how much to pay. (See Issues 127–131.) We’ve talked about how important value drivers are in a successful sale and consequently how it is the work of the owner (not employees) to create and to nurture them.

Issue 157: Time to Figure Out What You Need From the Sale of Your Company
The recession has brought a lot of challenges, but it has also brought the luxury of time: time to figure out exactly what you need from the sale or transfer of your company to support a comfortable post-sale lifetime and time to create enough value in your company to achieve your desired sale price.

Issue 156: Will Your Future Look Like Today?
Near the end of 2008, we noted that the economic downturn had forced many owners to postpone their plans to exit their companies. We then looked at the several actions owners could take to respond to that delay.

Issue 155: Should You Sell Your Company Now?
Should you sell your company now? Not only does the answer depend on you (how much fire you’ve got left in your belly) and on your exit goals (can a sale achieve your retirement needs?), it also depends on what you’ve got to sell, what industry you are in and M&A market conditions in your market segment.

Issue 154: Want to Business Value in a Recession?
In an economy when many of us are tempted to bury our heads until the shooting is over, smart business owners are realizing that this may be the perfect time to acquire smaller, less adaptable, less capitalized or less well-managed competitors.

Issue 153: Protecting Your Company's Value in a Recession
In the previous issue of this newsletter, we talked briefly about how owners can and do build the value of their companies — even during a recession. Some owners will take that approach, but all owners should be, at a minimum, protecting the existing value of their companies. This issue is devoted to explaining a few of the ways you can do exactly that by concentrating on specific items taken from a fiscal year agenda that we use with many business owners. (Meeting annually with your advisors before your fiscal year-end is a great way for all of you to keep your planning on track.) If you would like a copy of the entire outline, please contact us.

Issue 152: Keeping theFire in Your Belly as the Economy Cools
Faced with a barrage of bad economic news, business owners wonder first how they will survive in what promises to be a tough environment and then, if they’ll be able to leave their companies when they planned. Before we can help owners to answer that question, let’s look at their three options: (1) hunker down until the market recovers; (2) actively work to build business value; or (3) sell now for whatever you can get.

Issue 151: In Tough times, What Are Your Options?
With this issue of The Exit Planning Review™we begin a discussion of how owners of mid-sized business are making decisions about their futures in a quickly changing economy.

Issue 150: Valuation in Buy-Sell Agreements
In this series of articles about buy-sell agreements, we’ve talked about what those agreements are, what transfer events they cover, why these agreements must be updated as shareholders and companies grow and change, and why the choices you’ve made about whether buy outs are mandatory or optional may change over time. In this article, we’ll discuss the all-important issue of valuation: the pros and cons of using three common valuation methods.

Issue 149: As Your Business Changes, Update Your Buy-Sell Agreement
In the prior two issues of this newsletter, we’ve looked at several key elements of your buy-sell agreement and the transfer events that can trigger a buyout. Today, we look at all the types of changes (in you, your partners, your company, your finances and your industry) that can transform that vigorous buy-sell you created years ago into a lumbering, but potentially dangerous, dinosaur. In this issue you’ll also find a checklist that will help you assess the viability of your buy-sell agreement.

Issue 148: Does Your Buy-Sell Cover Everything it Should?
In the previous issue of The Exit Planning Review™, we discussed what a buy-sell agreement is and why you should dust it off, take a second look at it, and call your advisors to update it.

Issue 147: Is Your Buy-Sell Agreement Current?
The business continuity agreement is the single most important document that the owners of a closely held business will ever sign. This agreement (also known as a buy-and-sell or buy-sell agreement) controls the transfer of ownership when certain events occur. These events include: the death or disability of a shareholder, an involuntary termination or retirement of a shareholder and even (yes they do happen) disputes among owners.

Issue 146: Should I Sell My Business Now?
We previously looked at the first two common objections that can influence your timing on selling your business -- determining business value and losing employees or customers before you sell. We will follow up on this discussion by looking at the remaining common objections that can affect your decision to cash out of your business and move on to the next stage of your life.

Issue 145: Should I Sell My Business Now?
As we discussed in the past The Exit Planning Review™ article, one of the biggest obstacles in exiting your business is overcoming your objections, many of which tend to be based on misunderstanding the "facts". The objections that tend to hold back owners from selling their businesses are usually based upon some combination of the perspectives listed in this article.

Issue 144: Should I Sell My Business Now?
If you simply are not emotionally ready to sell, if there is still fire in your belly — enough fire to fuel your continued investment in the company — or if you ultimately want to leave the business to family members or employees, then you may not be in a position to sell your business — yet. If you and the business are ready to sell, but you still hesitate, let’s look at typical reasons for that hesitation and what you may be able to do about it.

Issue 143: Should I Sell My Business Now?
As we have been discussing in the past few Exit Planning Review™ articles, it is important to take into account personal motives and objective conditions when you are trying to determine the best time to sell your business. For owners who toil long and hard to overcome the endless challenges that test the survival and success of their businesses, the thought of someday selling out for a lot of money seems, at best, a pipe dream. A typical business owner in this situation may think, "Who would want to buy my business?"

Issue 142: Should I Sell My Business Now?
As we have been discussing in the past few Exit Planning Review™ articles, the personal decision to sell your business is usually based upon a combination of factors.

Issue 141: Should I Sell My Business Now? Examine Your Personal Motives First to Determine Your Readiness: Part Two
We previously looked at the first two personal motives that can influence your timing on selling your business — taking chips off the table and losing the fire in your belly. We will follow up on this  discussion by looking at the next two personal influences that can support an owner’s decision to cash out of their business and move on to the next stage of their life.

Issue 140: Should I Sell My Business Now? Examine Your Personal Motives First to Determine Your Readiness: Part One
The personal decision to sell your business is usually based upon some combination of the following:

• A desire to “take the chips off the table.” Your tolerance for risk just isn’t what it used to be.
• The joy of going to work each day is fading. Not only has the fire in your belly gone out, but it’s been replaced by the desire to do “something else,” known or unknown.
• The “Successor Designate” can’t or won’t succeed. Neither child nor employee is able or willing to fill your shoes.
• You realize that now is the time to sell because you can attain financial security.
• There are a lot of activities other than running a company that you still want to experience.

Today, let’s look at the first two personal motives that can influence your timeline of cashing out of your business today and moving on to the next stage of your life.

Issue 139: Should I Sell My Business Now? Personal Motives and Business Conditions to Consider when Exiting a Business
Most owners consider selling their businesses when two decision paths converge. The first path is the subjective or personal decision to sell: it is time to sell because personal goals can now be met  better by selling the business than by staying active in it. The second path is the objective or business decision: both the Merger and Acquisition Market and your company’s readiness make it the right  time to sell.

Issue 138: Succession Planning vs. Exit Planning
With the recent buzz about Baby Boomer business owners preparing to leave their companies within the next few years, there can be confusion about the different terminology used for this planning  concept. For instance, many people believe that succession planning and Exit Planning are one within the same and can be used interchangeably when talking about owners who are in the process of  leaving their businesses. However, this misconception can end up leaving you unprepared for one of the biggest financial events of your life.

Issue 137: Estate Planning for Business Owners and Their Families: How Can I Minimize Estate Taxes?
In the realm of Exit Planning and Estate Planning it can be important to understand what estate taxes are, know the tools available to help minimize them, and employ those tools to transfer your estate  (including your business) to the “objects of your bounty” upon your death. To conclude this series of Exit Planning Review™ articles, we will focus on the last important area of estate planning for  business owners and their families – strategies to help minimize estate taxes when creating such a plan.

Issue 136: Estate Planning for Business Owners and Their Families: How Can I Help Preserve My Assets from the Claims of Creditors During My Lifetime and at My Death?
This article will focus on the common estate planning concern that many owners have about preserving their assets from the claims of creditors and the litigation process. One of the most frequent  questions that we frequently hear from our clients is, “Can I transfer my assets to my spouse to avoid creditors?” Since each owner’s situation is different depending on your overall Exit Objectives, there  isn’t a one–size–fits–all answer. However, we will provide you some guidelines in this article for elements to consider when working with your Exit Planning Professional to accomplish this important  estate planning goal.

Issue 135: Estate Planning for Business Owners and Their Families: Why Should I Use My Business to Help Fuel the Growth of My Estate Outside My Business Interest?
The remainder of this article will provide additional insight into and strategies as to how to use your business to fuel the growth of your estate outside of your business interests and how to provide for your family’s income needs.

Issue 134: Estate Planning for Business Owners and Their Families: How Can I Provide for an Equitable Distribution on My Estate Among My Children? - Part Two
In the last issue of The Exit Planning Review™, we introduced you to the hypothetical case study of Mike Jones, a 51-year-old owner of a successful scaffolding company and the father of two sons – one  of which was active in the business and was interested in taking over the company upon Mike’s departure. Since Mike also had a non-business active son in the picture, the issue of providing an  equitable distribution of his estate among his children weighed heavily on Mike’s mind.

Issue 133: Estate Planning for Business Owners and Their Families: How Can I Provide for an Equitable Distribution of My Estate Among My Children? - Part One
Parents normally want to give equal amounts of their estates to their surviving children, regardless of how active each child is in the business. The problem with including this provision in a will is that each  child may get not only an equal amount of the business, but also an equal amount of the non-business assets.

Issue 132: Estate Planning for Business Owners and Their Families: Addressing Six Critical Questions
James Keefe sat nervously in his Exit Planning Advisor’s office. Until the day before, he had been president of Keefe Automotive Sales, one of the region’s largest new car dealerships. Now he was out of  a job and felt he was a victim. Naturally, his first thought was to sue those responsible for his misfortune. The targets of his wrath were his younger sister and his mother. They had forced him out of the  business.

Issue 131: Value Drivers: Developing Financial Controls to Manage Your Business
As we have discussed in the past few articles, getting a premium price for the sale of your business can depend, in large part, upon your efforts to adopt and implement value drivers. The last value driver  that we are going to discuss in this series of articles is the existence of reliable financial controls that you can use to manage the business. Documented financial controls are not only a critical element  of business management, but they also can help safeguard a company's assets. Most importantly, however, effective financial controls help verify (for the buyer) the financial condition of your company.

Issue 130: Value Drivers: Establishing Realistic Growth Strategies
Buyers tend to pay premium prices for companies that have developed realistic strategies for growth. This growth strategy must be communicated to a potential buyer so that the buyer can see specific  reasons why cash flow (and the business itself) should grow after it is acquired. The growth strategy is illustrated in pro forma statements that are used by buyers (and their investment bankers) to create  a discounted future cash flow valuation of your company. Since future cash flow is based on estimates of future growth, having a realistic growth strategy can be vital to reaping top dollar for your  business.

Issue 129: Value Drivers: Establishing a Diversified Customer Base
Put on those buyer's shoes one more time and you'll find yourself shuffling past companies with great management teams and excellent systems, but whose cash flow is dependent on one or two  customers. Why would buyers spend millions of dollars on a business only to have those customers go elsewhere after they've acquired the company? At the very most, a prudent buyer could structure a  buyout to protect against the loss of a key customer, probably by making much of the purchase price contingent or requiring the seller to carry a note for the bulk of the purchase price. As a seller,  binding your financial well being (for several years) to your former company and its customer is likely to be the last scenario you prefer.

Issue 128: Value Drivers: Building Reliable Systems to Sustain the Growth of the Business
As we have discussed in previous Exit Planning Review™ issues, a solid management team is one of the first important value drivers to focus on when you are preparing your business exit. In addition to  building a strong management team, you also must build reliable operating systems that can sustain the growth of the business. The second value driver then is the development and documentation of  business systems that either generate recurring revenue from an established and growing customer base or create financial efficiencies. For most businesses, this includes all of the core processes that  generate revenue or control expenses. These systems may include processes related to production or service delivery, but also may include people-related processes such as a succession planning or a performance management approach.

Issue 127: Creating Value in Your Business to Get Top Dollar Upon Your Exit
Did you ever wonder why one business has buyers lined up willing to pay top dollar while another sits on the market for months, or even years? What do buyers look for in a prospective business  acquisition? The characteristics buyers seek must exist before the sale process even begins. It is your job as the owner to create value within your business prior to the sale.

Issue 126: Transferring Management Responsibilities Prior to Your Business Exit: The Importance of Shifting Core Duties Prior to Your Exit: Part Two
In the last Exit Planning Review™ issue, we discussed the critical issues associated with human resources, as well as sales and marketing duties that need to be addressed in a management transition  plan. We will continue our discussion on the critical management responsibility transition areas that owners need to address prior to their business exit by referring back to our hypothetical business  owner, Will Tryon. As Will became more interested in slowing down and stepping away from the day-to-day tasks of running his business, he realized that he needed to transition even more of his responsibilities to his management team, such as financial decisions, infrastructure/capital investment decisions and general business duties.

Issue 125: Transferring Management Responsibilities Prior to Your Business Exit: The Importance of Shifting Core Duties Prior to Your Exit: Part One
In the past two issues, we have discussed the importance of transferring management responsibilities in advance of your planned departure date and the roles of your advisors in the process of developing a successful management transition plan. The next two articles will conclude our series on transferring management responsibilities by discussing which areas of the business you should focus on when developing your plan.

Issue 124: Transferring Management Responsibilities Prior to Your Business Exit: Establishing a Strong Advisor Team is Critical to Plan Success
When you sold your home, you did not hesitate to use a Realtor®. Exiting your business can be much, much more involved (and financially more significant) than selling your home and it can require  sophisticated, experienced advisors to guide you through the process.

Issue 123: Transferring Management Responsibilities Prior to Your Business Exit: The Importance of Creating a Plan to Ensure a Smooth Ownership Transition
Many business owners find that transferring management responsibility is an important issue for them to address when they are thinking about leaving their business. However, many tend to overlook this  important business exit element because they get too wrapped up working in their business rather than working on their business. Many owners may have some people in mind to transfer management  responsibility to, but they may not have a good idea of how to accomplish their desired management transition goals.

Issue 122: Planning for Departing Owners: The Value, Funding and Payment Aspects of Lifetime Ownership Transfers
In the last issue, we introduced you to the hypothetical case study of business owner Steve Hughes, one of three equal shareholders in a growing advertising agency. At age 38, Steve had a stroke that  did not allow him to return back to work. Steve’s firm had a buy-sell agreement, but it covered only a buyout at death and an option for the company to buy his stock if he were to try to sell it to a third party.

Issue 121: A Surefire Method of Creating Conflict Among Co-Owners: The Importance of Buy-Sell Agreements When Disability or Other Lifetime Ownership Transfer Events Occur
When co-owners are united in striving toward common business goals such as growing revenue, business value and cash flow, the business dynamics can be wonderfully positive and strong. The owners  are moving forward together to reach common goals. Contrast that bright picture with what can happen when, suddenly perhaps, the goals of the owners diverge.

Issue 120: Business Continuity Agreements: Mandatory Versus Option Buyouts in Buy-Sell Agreements
In the past two issues, we introduced you to the business continuity agreement (also called a buy-sell agreement) and we outlined some of the many advantages of this type of business document. To  get a better idea of the role of buy-sell agreements in the overall Exit Planning Process, we now will discuss the pattern of a typical business continuity agreement and the most important provisions of  the agreement. The first consideration we will look at is the difference between mandatory and optional buyouts.

Issue 119: Business Continuity Agreements: Even More Reasons for a Well-Crafted Buy-Sell Agreement: Part II
In the last issue, we introduced you to the business continuity agreement and we discussed how this document can be one of the single most important items that you, as a closely held business owner,  will sign. We also outlined some of the many advantages of a business continuity agreement (also called a buy-sell agreement) in regard to establishing transfer to ownership, valuation techniques, and terms and conditions.

Issue 118: Don't Do Business Without This Agreement! The Essential Business Agreement: A Business Continuity Agreement Among Owners: Part I
The business continuity agreement can be one of the single most important documents that you, as a co-owner of a closely held business, will sign. The following Acme In-Law hypothetical case study illustrates the importance of a well-crafted buy-sell or business continuity agreement.

Issue 117: Transferring Your Company to a Business-Active Child: Leveraging the Stock Bonus Plan
As discussed in the previous issues of The Exit Planning Review™, it is important to understand the tax and other implications associated with the three most common business-active child transfer  techniques. In the past issue, we discussed the advantages and disadvantages of selling stock and gifting stock. The last scenario that we will look at during this Exit Planning Review™ series of articles  is transferring ownership via a stock bonus.

Issue 116: Transferring Your Company to a Business-Active Child: Selling Ownership Versus Gifting Ownership
In the last issue, we began the important discussion of determining how to choose the most appropriate exit path to successfully transfer your company to a business-active child. As is the case with any exit path scenario, the first stepin choosing an appropriate exit technique is identifying your ownership transition objectives. After you have set your exit objectives (as we discussed in the previous Exit Planning Review™ issue), the next step is to align your objectives with the most advantageous exit path.

Issue 115: Transferring Your Company to a Business-Active Child: Choosing an Appropriate Transfer Technique to Meet Your Needs
Lao Tzu, the ancient Chinese philosopher, may not have been a closely held business owner, but he had it right, 2,500 years ago, when he said that “A journey of a thousand miles must begin with a single step.” Many family business owners face such a journey – a journey that begins with the decision to transfer the business to children and ends only when the final ownership interest is transferred.

Issue 114: Effectively Transferring Wealth to Children with Reduced Tax Impact: Leveraging Tools to Minimize Estate and Gift Tax Consequences
The key to transferring large amounts of wealth was discussed 2000 years ago by the patron saint of estate planning attorneys, Archimedes. Regarding leverage he observed, "Give me a place to stand  and I will move the earth." Using leverage to move the earth or to move your wealth is the key to achieving noteworthy results. As we have discussed, each U.S. resident can give away $1 million during a lifetime, as well as $12,000 annually.

Issue 113: Effectively Transferring Wealth to Children with Reduced Tax Impact: Determining How Much Money is Appropriate to Leave Children
In the last few issues, we have introduced you to a strategy for successfully transferring a portion of your company’s wealth to your children and discussed the first important step in this process –  determining the amount of money you wish to have after you exit your business. After you have determined this amount, the next step is to establish the amount of wealth you are comfortable with transferring to your children.

Issue 112: Effectively Transferring Wealth to Children with Reduced Tax Impact: Determining How Much Wealth is Needed After the Business Exit
One of the primary decisions every business owner makes when transferring wealth to children is not how to accomplish the transfer, (that’s the estate planner’s job) but how much wealth to transfer to  the children. Answering that question requires that you first revisit your own exit objective; namely, how much wealth you wish to have after you exit your business. The amount of wealth owners wish to  leave to their children usually (but not always) depends on how much the owners wish to keep after they exit their business. As a general rule, we discourage parents from making significant gifts to  children until their own financial well-being is assured. Only after the parents’ needs are met do we ask how much is enough—or too much—for the kids.

Issue 111: Effectively Transferring Wealth to Children with Reduced Tax Impact: The Importance of Aligning Objectives Prior to the Wealth Transfer
You may have just realized that you want to transfer a portion of your company’s wealth to your children or it may have been something that has always been in the back of your mind. Either way, one of  the first questions that parents struggle with answering is, "How much wealth should the children have? How much is too much?" If you are struggling with these questions, it is important for you to revisit  your original exit objectives, namely, "How much money do you wish to have after the sale of your business?" Once you have answered this question, you then can work with your advisors to design a transfer mechanism that will pass the wealth to your children with minimal tax impact.

Issue 110: The Importance of Financial Statements in the Exit Planning Process: Identifying Different Types of Statements
In the last issue of The Exit Planning Review™, we discussed the importance of understanding and reviewing financial statements with your Exit Planning Advisor. In this issue, we will look at the different types of financial statements that exist, the costs associated with creating the statements and the importance of these different types when exiting your business.

Issue 109: The Importance of Financial Statements in the Exit Planning Process
Whether you plan to transfer your business to an insider or sell to a third party, demonstrating financial stability through sound financial statements is a crucial step in establishing a successful business exit. When you first meet with an Exit Planning Advisor, they will want to determine your company’s current situation, which will include reviewing business tax returns for the previous two to three years and current financial statements of the business, as well as your personal financial statements.

Issue 108: Selecting the Right Exit Path: Sale to a Third Party
As discussed in the previous issue of The Exit Planning Review™, it is important to select your successor early in the Exit Planning Process. In the past two issues, we have discussed the advantages and disadvantages of transferring ownership to children and selling to other owners or employees. The last scenario that we will look at during this Exit Planning Review™ series of articles is the sale to a third party.

Issue 107: Selecting the Right Exit Path: Sale to Other Owners or Employees
As discussed in the previous issue of The Exit Planning Review™, it is important to select your successor early in the Exit Planning Process. One of the great advantages of having other owners in your business is that they can be your means for retirement. Especially with smaller businesses, a common Exit Planning technique is to have a younger individual buy into your business while you are still active. Upon your exit, the younger owner will purchase your remaining stock.

Issue 106: Selecting the Right Exit Path: Transferring Ownership to Children
Trends have indicated that the majority of owners of smaller-sized businesses prefer to transfer the business to other family members, an employee or a coowner. Only a small percent of these owners want to sell to an outside third party. Unfortunately for owners, the people they first identify as their successors often do not end up as the ultimate owners. Much effort is wasted focusing on the wrong successor target or, worse yet, wrongly assuming a child or employee wants to own the company typically doesn’t take into account alternative plans.

Issue 105: Planning for Your Inevitable Business Exit
Exit Planning is neither mysterious nor time-consuming. The purpose of Exit Planning is not to sell you a product – it is to achieve your financial and lifestyle objectives. Business owners achieve their Exit Objectives when they leave their companies when they want, to whom they want and with the amount of cash they want. Exit Planning provides owners with the keys to running their businesses so they can leave them in style.

Issue 104: Family Business Transfers
In the last issue of the Exit Planning Review™, we discussed when it is appropriate to enlist the expertise of a Family Business Consultant. We also looked at typical warning signs and indicators that might suggest the need for a Family Business Consultant. After you have determined that you need to bring in a Family Business Consultant to help deal with the emotional and behavior issues associated with family business transfers, the next step is to find one that matches your Exit Planning objectives.

Issue 103: Family Business Transfers
When it comes time to go through the tough areas such as the family dynamics (emotional and behavioral issues) that inevitably arise when any type of change threatens to occur (leadership, control, succession, wealth transfer, etc.), family business consultants help you, your family and your advisory team navigate the nuances of the special passage way, rather than suffer through the otherwise long tumultuous journey around the problem.

Issue 102: Family Business Transfers
In this article and in the following series of Exit Planning Reviews™, we will focus on the third objective stated above and discuss the best way to deal with the emotional and behavioral issues associated with family business transfers.

Issue 101: Use Short-Term Incentive Plans to Retain Key Employees During the Transfer of a Business
Once an owner recognizes the value of the Stay Bonus or other incentive plan, he or she meets with the Advisory Team (attorney, CPA and financial advisor) to discuss the specific objectives he hopes to achieve.

Issue 100: Use Short-Term Incentive Plans to Retain Key Employees During the Transfer of a Business
Unlike typical key employee compensation plans, the vesting schedule is also the payment schedule for this Stay Bonus Plan. A manager becomes vested in his or her share at the closing of the sale and receives one-third of the payment at that time, one-third at the first anniversary, and the remainder at the second anniversary of the closing date.

Issue 99: Use Short-Term Incentive Plans to Retain Key Employees During the Transfer of a Business
Using a sound and thoughtful incentive-based plan for key employees, you can achieve these key employee objectives, as well as your overall Exit Planning objectives. Prior to beginning the Stay Bonus Plan creation process, it is important for you to address the following four Lifetime Stay Bonus considerations.

Issue 98: Use Short-Term Incentive Plans to Retain Key Employees During the Transfer of a Business
So, how do you ensure that your key employees will remain at their posts, even as you prepare to leave yours? One short-term incentive plan that can be set up to meet your employee incentive Exit Plan objectives is the Lifetime Stay Bonus.

Issue 97: Use "Oldco/Newco" to Transfer a Company to Insiders Who Have Little or No Cash
Similar to the family business transfer scenario we looked at last time, "Oldco/Newco" also is a good Exit Plan if you have key management team members who want ownership of the company now or they might leave "Oldco" and form a new, competitive entity.

Issue 96: Use "Oldco/Newco" to Transfer a Company to Insiders Who Have Little or No Cash
Oldco/Newco is designed to avoid ongoing business operational liability, minimize tax consequences on a sale of business assets, and redirect business cash flow. The most common use of the "Oldco/Newco" concept is in family business transfers. In the family run business scenario, "Oldco/Newco" may work well if the situation does not lend itself to gifting, either outright or indirectly, by using a Grantor Retained Annuity Trust (GRAT).

Issue 95: Use "Oldco/Newco" to Transfer a Company to Insiders Who Have LIttle or No Cash
You have made up your mind that you will transfer ownership of your company to an insider — whether it’s your children or key employees. However, you may not be ready to turn over total control of the company just yet. In fact, you may want to make sure you can undo any damage that could result from your successors failing to successfully carry on the business, as well as failing to pay you in full for the business.

Issue 94: Use Equity (Stock) to Motivate Your Key Employees
When we suggested the Stock Bonus Plan, however, Stan found two reasons to become very interested. First, Stan liked the idea of forfeiture. We explained that every bonus of stock to an employee could be designed to have a substantial risk of forfeiture.

Issue 93: Use Equity (Stock) to Motivate Your Key Employees
Like any other bonus, owners can base a Stock Bonus on a performance standard. (If business makes $X or does "X," employee gets a predetermined amount of ownership.) Alternatively, they can simply assign whatever bonus amounts they feel are appropriate. The stock can be unrestricted or subject to substantial risk of forfeiture.

Issue 92: Use Equity (Stock) to Motiviate Your Key Employees
In our last issue we met Stan Bartholomew, a 50-year old business owner who wanted to motivate his key employees while beginning to transfer them stock. After reviewing the pros and cons of an Incentive Stock Option Plan (ISO), Stan wanted an alternative.

Issue 91: Use Equity (Stock) to Motiviate Your Key Employees
Business owners who set up employee incentive plans generally do so to motivate their employees to work harder and smarter. Owners engaged in The Seven Step Exit Planning Process™, however, use employee incentive plans to accomplish a number of additional purposes.

Issue 90: Six Reasons You Need A Certified Business Valuation
For business owners, paying non-essential professional fees is nearly as unpalatable as paying unnecessary taxes. If you are convinced that you don’t require the services of a certified valuation analyst to value your company, this will not be your favorite issue of this newsletter.

Issue 89: How Much Money do You Need?
The third question that we hear from many owners: "I can live on a lot less income once I leave the business."

Issue 88: Key Employees and Covenants Not To Compete
In our last issue, we looked at the thorny problem that faces owners who have key employees but who have no way of preventing them from competing (or taking other employees or customers) should they leave the company.

Issue 87: Key Employees and Covenants Not To Compete
The damage to an owner’s exit plan and to the business of losing key people is magnified when employees leave and take other employees customers, trade secrets, and long-term vendor relationships.

Issue 86: Time: Too Much or Too Little?
Active business owners seldom slow down. We all know that the only things likely to reduce your pace are death or terminal burn-out. This is not to imply that you are not well intentioned; quite the contrary. You are so well intentioned that you’ve taken on more tasks than you can possibly complete.

Issue 85: Business Continuity
Today we are going to talk about valuation in business continuity arrangements. As mentioned above, business continuity arrangements must cover both lifetime and death events. Your challenge (and that of your advisors) is to establish a valuation that is consistent for both events.

Issue 84: Think About Transferring Your Company To Insiders
Do you want to reduce your exposure to risk as you depart? How much risk do you want your successor to assume? Do you understand the need for a low enterprise value in this type of transfer? Is one of your objectives is to leave your company immediately?

Issue 83: Think About Transferring Your Company To Insiders
It is not particularly easy to transfer business ownership to key employees, children or other quasi-paupers without taking a great deal of risk.

Issue 82: Family Business Transfers - Part Six: The Recipe for Success: Ingredient 5 The Chosen One is Ready, Willing and Able / Ingredient 6 Having a Plan B
How does a parent know whether a child is capable and willing to run and own a business? So that is why with an intergenerational business transfer it is crucial to have a back-up plan.

Issue 81: Family Business Transfers Part Five: The Recipe for Success: Ingredient 4 Parental Financial Security Trumps All
In the first four parts of this series on family business transfers, we described the obstacles to such a transfer and the first three ingredients of a specific recipe for creating a successful intergenerational transfer. The first ingredient in that recipe is to engage in the same Seven Step Exit Planning Process™ that all savvy owners undertake to achieve a successful exit—modified for family business owners. The second is to allow only one child succeed in business ownership. The third is to design a transition that is fair to all children.

Issue 80: Family Business Transfers Part Four: The Recipe for Success: Ingredient 3 Being Fair to All Children
Most parents have a natural inclination to distribute every asset equally to all children. The thought of giving one asset, and very likely the most valuable asset, to one child is considered unequal and, therefore, unfair to the other children.

Issue 79: Family Business Transfers Part Three: The Recipe for Success: Ingredient 2 One Child Shall Succeed in Business Ownership
There are two possible ownership scenarios for families having more than one child. The first is that more than one child is active in the business. In that case, the predominant issue is to determine how multiple children are to share the control and ownership of the company. The second is having one business-active child and one or more children inactive. The primary concern in that case is to give the  business to the active child while being fair to everyone else (Ingredient Two).

Issue 78: Family Business Transfers Part Two: The Recipe for Success: Ingredient 1 Owners Must Undertake The Seven Step Exit Planning Process
In the previous issue of this newsletter, we identified many of the obstacles to a successful transfer of a family business. Despite those obstacles, some transfers do succeed. The question raised was,  "how?" There is a "recipe" for creating a successful intergenerational transfer. It isn’t the only recipe that works, but because it depends on six carefully chosen ingredients, its chances for successful completion are greater than others.

Issue 77: Family Business Transfers Part One: Can Family Business Transfers Succeed?
This, and the next several issues of The Exit Planning Review™ describe this challenge: if it is so difficult to successfully transfer a business from one generation to the next, is there a way to improve the likelihood of success? Better yet, is there a no-fail "recipe?"

Issue 76: An Estimate of Future Company Cash Flow: The Fifth of Five Elements In Every Successful Exit Plan
In this issue, we look at why securing a professional’s estimate of your company’s cash flow is crucial to the success of your Exit Plan. Any buyer, whether an outside third party or an insider (family member, co-owner or key employee) will use cash flow as a way of measuring the value of what they are buying.

Issue 75: A Preliminary Valuation of the Company: The Fourth of Five Elements in Every Successful Exit Plan
The fourth element of a successful Exit Plan is to know what your company is worth. To accomplish this, you should retain (if you haven’t already) a valuation specialist to give you and your advisors a good idea of what your company is worth.

Issue 74: Choice of Successor: The Third of Five Elements in Every Successful Exit Plan
The third element that you must put in place to kick off your Exit Plan is to pick a Target Successor. Compared to the list of possible departure dates or the variety of needs at retirement, the list of possible successors can be quite short:

• A child, children or other family member
• A co-owner(s)
• A key employee (or group of key employees)
• An unrelated third party
• An ESOP (Employee Stock Ownership Plan)

Issue 73: A Preliminary Financial Needs Analysis: The Second of Five Elements in Every Successful Exit Plan
You should retain a financial planning professional to make this analysis. Most of us have been through the exercise of listing assets, and expenses so that our advisor can plug in various growth and inflation assumptions as well as our life expectancies and number of years until retirement. Using these "what if" scenarios, we can estimate the size of our nest eggs.

Issue 72: Your Target Departure Date: The First of Five Elements in Every Successful Exit Plan
This Exit Planning Process developed by John H. Brown, President of Business Enterprise Institute, is owner-based. In other words, its foundation are your exit objectives: when you want to leave, how  much money you want when you leave, and who you want to succeed you. Once you have determined those objectives, you and your Exit Planning Team (a successful Exit Plan requires the expertise of a number of trained, experienced professionals working together) can proceed through the rest of the process: determining and, if necessary, building business value, handling business continuity and estate planning issues and finally, executing the transfer so that it meets your financial and other goals.

Issue 71: Using A Valuation Specialist In The Sale Or Transfer Of Your Business
In order to leave your business successfully, you must not only know what you want (when you want to leave, how much money you will need and who you want to sell to) you must know how much your business is worth. For example, if you told your advisors all about your objectives but you couldn’t tell them with any certainty what your company was worth, how could they help you reach your destination? It would be similar requesting a map but not knowing if you planned to take a plane, a boat, a car or walk to the destination.

Issue 70: Seven Reasons Owners Don't Sell To Key Employees: Part III
In this final part of our three-part series on why owners sell to key employees, we look at why owners choose not to sell to this type of buyer. If you are considering or in the process of transferring to key employees, we suggest that you pay particular attention to these seven obstacles that can derail this process.

Issue 69: Five Reasons Owners Actually Do Sell Their Companies to Their Key Employees: Part II
In the previous issue of The Exit Planning Review™, we surveyed the seven reasons business owners want to sell their companies to their key employees. As you know, motives are very different from outcomes. In this second part of the series, we discuss the five reasons that owners actually do sell their companies to their key employees.

Issue 68: Seven Reasons Owners Want to Sell Their Companies to Key Employees: Part I
If you don’t have a co-owner, a family member willing or able to succeed you, or your company is worth less than $2 million, your best option may be a sale to key employees. This article begins a three-part series that explains why owners want to sell to their employees (part one), what conditions often prompt an owner to sell to key employees (part two) and finally, what obstacles can prevent this type of transfer (part three).

Issue 67: Why Should You Exit Plan When You Have No Plans To Exit
Over the years, we’ve learned that it is a mistake to push owners to make a decision to leave a business before they are ready. That said, however, it is your responsibility, as leader and owner of your business, to prepare that business for the inevitable. After all, someday you will leave the business— even if they carry you out on your shield.

Issue 66: Business Continuity: Lifetime Exits - Part III
What happens when two, or more, non-controlling (usually equal) owners become locked in a bitter dispute but neither is able to fire or get rid of the other? How can a buy/sell agreement be designed to resolve this unfortunate but, all too common, situation?

Issue 64: Business continuity: Lifetime Exits - Part I
We launched this discussion of business continuity talking about the impact your death would have on your company because death is what owners usually think of when they hear "business continuity" or "buy/sell agreement." Thankfully, however, most of us will leave our businesses by walking out of the front door, rather than by being carried out under a sheet. Good business continuity agreements address a variety of lifetime exits as thoroughly as they do the death of an owner.

Issue 63: The Loss of Key Talent - You!: The Third of an Owners' Business Continuity Concerns
In the previous two issues of this newsletter, we discussed the first two issues that business owners must address if they want their companies to continue should they die or become disabled. The first issue was the continuation of ownership. The second was the company’s loss of financial resources. The third, and the subject of this newsletter, is the company’s loss of key talent— you — and the cascading affect on employees and customers.

Issue 62: Company's Loss of Financial Resources: The Second of an Owner's Business Continuity Concerns
In the previous issue of this newsletter, we discussed the first of three issues that business owners must address if they want their companies to continue should they die or become disabled. The first issue was the continuation of ownership. The second, and the subject of this issue, is the company’s loss of financial resources.

Issue 61: Continuity of Ownership: The First of an Owner's Business Continuity Concerns
Most, if not all, business owners have been approached by at least one of their advisors with the ever-popular question, "What would happen to your business if you died or became disabled?" Few business owners fail to recognize this question for the thinly-veiled pitch to buy insurance that it is.

Issue 60: Cash Flow Forecasting: The Ultimate Reality Check
In past issues of The Exit Planning Review™, we have looked at why cash flow is so important to third party buyers, and by extension, to sellers of closely-held companies. In short, a seller must demonstrate an increasing stream of cash flow from the business. Without a healthy cash flow, a buyer may pass over the opportunity to buy your business in favor of purchasing a "good" company with less risk. In this issue, we will examine why cash flow is also crucial to those owners who wish to transfer their companies to insiders (employees, co-owners or children) and how to allocate cash flow.

Issue 59: Passing The Smell Test
Subjecting the sale or transfer of a business to the "Exit Planning Smell Test" means to hold it up to the scrutiny of The Seven Step Exit Planning Process™. Let’s look at this test one step at a time.

Issue 58: Stock Appreciation Rights Plan
You have recently hired your replacement or other key employee and you want to her to stay long term and to help grow your business. What do you do to motivate her to stay and to perform? A Stock Appreciation Rights Plan may meet both the needs of the key employee and of the owner, because it gives employees something that looks like stock, grows in value like stock, and can be turned in for cash just like stock, but is not stock.

Issue 57: The Real Tax Advantages of Phantom Stock Plan
In the last issue of The Exit Planning Review™, we discussed the advantages of using a Phantom Stock Plan to achieve the business owner’s desire to motivate employees so that those employees work to increase the value of his or her company. Rather than awarding stock, a Phantom Stock Plan gives the employee something that is valued like stock but is not stock. Instead, the employee is  awarded "Participation Units," valued just like shares of stock. Participation Units grow in value in proportion to real company stock but are subject to vesting, forfeiture and payment schedules. Finally,  Phantom Stock Plans allow employees to reap the financial rewards of ownership with less risk.

Issue 56: Phantom Stock Plan - The Stock Plan That Isn't
A Phantom Stock Plan can help meet both the needs of the key employee and of the owner, because it gives employees something that looks like stock, grows in value like stock, and can be turned in for cash just like stock, but is not stock.

Issue 55: Owner Deffered Compensation
In an ideal world, every seller of a privately-held company would leave the closing table with enough cash to enjoy the "golden years." But we live in the real world and unless your company is worth well in excess of $10 million and you find a buyer who is willing and able to pay all cash, you may receive part of the consideration for your company in a form other than cash. If you transfer your company to an  insider (co-owner, employee or child active in the company) the non-cash portion of your compensation may be quite large.

Issue 54: Tax Planning Begins Now
"Current tax rates are likely the lowest we will see in our lifetimes. At some point, burgeoning budget deficits, ballooning costs of social programs and the War on Terror must be paid."

Issue 53: Pre-Sale Due Diligence
This article is for those who have ever given thought to selling their companies to a third party. In order for you to attract a buyer to your company, you must engage in the pre-sale due diligence process well before your anticipated departure date.

Issue 52: Confidentiality During The Sale Process
You can’t believe it! You decide to sell your business and the next day it seems that half the city knows you're trying to sell. What affect will that information have on your employees, vendors competitors and customers? This is a real concern of owners once they decide to sell. The next thing they know is that everyone in the free world knows their intentions. How does that happen and how can it be prevented?

Issue 51: Buying Out Your Partner
Hypothetical Case Study:
MMS, Inc., a computer service business, had survived the recent industry fallout through the persistent efforts of its owners, Ralph McMillan and Janet Shaw. In fact, MMS had enjoyed good cash flow for the past three years and its future was looking better than ever. All of this made Ralph, age 59, more anxious to leave the business. Meanwhile, Janet was ready for him to leave. But neither of them had a clear idea of how to proceed, who to ask for guidance or even how to take the first step.

Issue 50: Employee Ownership: It Is Not For Every Employee
Hypothetical Case Study:
Sonny Monterosso was dedicated to his business and to each of its 26 employees. As he began thinking of the day when he would leave his wholesale bakery business his thoughts turned naturally to selling the company to the three key employees who had done so much to build the business and who ran it on a daily basis.

Issue 49: Incentive Plans for Key Employees Designing Performance Criteria: Part II
The previous issue of The Exit Planning Review™ discussed the primary reason that it is so important to motivate your key employees to stay with your company. Ultimately, your ability to get top dollar for your company may depend on your ability to create, motivate and keep good management. That article further described the four characteristics of a successful incentive plan. The fourth characteristic of a successful incentive plan is that key employees earn the incentive bonus based on a performance standard that, when attained, increases the value of your business.

Issue 48: Incentive Plans for Key Employees: Part I
Experts and laymen agree that one constant of successful companies is a stable, motivated management team. This quality not only contributes to corporate success, it is also key to the business owner’s successful business exit. Should you decide to sell your business to a third party, you’ll discover that potential buyers place significant value on the strength of your management team—if that management team can be expected to remain after you have left the business. Similarly, if you contemplate selling the business to family (or to employees), the likelihood of being paid for the business after you’ve left can be entirely dependent on the strength of your remaining management team.

Issue 47: Exit Planning Myths
Myth: "My CPA will tell me when it is time to start planning for my business transition." (Replace CPA with "attorney," "financial planner," or "insurance professional" and the myth remains intact.)
Fact: Your advisors, be they CPA’s, attorneys, Financial or Insurance Professionals, may not initiate planning discussions primarily because you have not told them you are interested in leaving your business.

Issue 46: What Your Advisors Must Know
Past issues of this newsletter have described the function of the Advisor Team (usually, at minimum, a CPA, attorney, financial planner, and insurance professional) that you should assemble to help you orchestrate a successful exit. This issue provides a suggested list of nine important characteristics that you should look for in members of your Advisor Team.

Issue 45: Exit Planning Myths
Myth: "My CPA will tell me when it is time to start planning for my business transition." (Replace CPA with "attorney," "financial planner," or "insurance professional" and the myth remains intact.)
Fact: Your advisors, be they CPA’s, attorneys, Financial or Insurance Professionals, may not initiate planning discussions primarily because you have not told them you are interested in leaving your business.

Issue 44: Minimizing A Lender's Risk When Financing A Sale
Whether you plan to sell your company to a third party or transfer it to key employees, co-owners or children, your banker can provide the cash necessary for a smooth transition. In all scenarios, banks strive to minimize their risk. One way to do so is for buyers to take advantage of the Small Business Administration's (SBA’s) loan guaranty programs that can protect the lender bank against loss in case of default.

Issue 43: Sold! To The Highest Bidder
In today’s recovering Merger and Acquisition marketplace, an all-cash buyer is as rare as a balanced federal budget. Those buyers who do arrive at the closing table with cash with cash in hand may not be over-burdened with huge bagfuls. Almost as uncommon as the all-cash buyer is the offer of a valuation multiple that approaches (much less matches) the multiples of the late 1990s.

Issue 42: Tainting The Marketplace
So, you’ve decided to become a seller. You have determined that even though market conditions are not absolutely ideal, your company is saleable. This scenario is reminiscent of a little boy who cried "Wolf!" In our context, the story usually begins when a buyer approaches you (unexpectedly) expressing an interest in acquiring your company. Without adequate preparation, you proceed with negotiations to sell your business. Typically, the business is unprepared for the marketing process. In addition, you have certainly not had time to properly analyze who to approach and how best to approach potential buyers.

Issue 41: Going It Alone
So what if you’ve never sold a business before? You know what you want from the sale of yours. You know your business better than anyone else. Who better to lead the charge than you? Don’t mislead yourself. You may be the worst possible person to sell your company. Why? You may be the person most attached emotionally to your business. You may find it difficult, if not impossible, to negotiate in a detached, dispassionate and effective manner with a prospective buyer.

Issue 40: Your Banker: The Forgotten Advisor Team Member
Fellow business owners, let's be honest. We fear our bankers. On a daily basis, we may give them little thought. When time comes to tell them we're planning to exit our businesses, or when we need money, however, we may experience feelings ranging from mild anxiety to outright panic. Why? We've been conditioned to believe that bankers say "no" far more often than they say yes. That may or may not be true but bankers make money by saying yes. When they turn down a loan, they just don't lose money.

Issue 39: Systems: Value Divers? Yes! Between the Owner's Ears? No!
Case Study
Dawn and Preston Slater, owners of a machine shop with $7 million in annual revenue, sat down and announced, "We have decided to leave the business as soon as possible. We've got our management team in place and want to execute a transfer of the entire business in the next six to 24 months. It has been a great run but we are burned out. What do we do next?"

Issue 38: How Much Is All This Exit Planning Going To Cost?
In the previous issue of The Exit Planning Review™, fictional owner, Dennis Bradenton, had called his accountant to ask her to help him transfer his company to his management team. No stranger to Exit Planning, his accountant assembled all of Dennis’s advisors and launched a complete Exit Planning process. She began, not with an examination of how a transfer to Dennis’s desired successor might work, but by having Dennis answer the first three Exit Planning Questions:

• When do you want to leave your business?
• How much money do you need when you leave your company?
• To whom do you want to transfer your company?

Issue 37: My Lawyer Told Me Not To Do It!
It may not be uncommon for business owners to call one of their advisors to complain, that their lawyer (or CPA or financial advisor or insurance professional) told them that they should not even think of transferring their business to their child and key employees but they want to do it anyway. If you’ve made this type of call, I hope your advisor answered with the same definitive "Maybe" that fictional owner, Dennis Bradenton, received.

Issue 36: Family Succession Planning Via Sale To Third Party
Many business owners facing imminent exit have the enviable but difficult choice of either selling the business to an outside third party and achieving their financial objectives or, conversely, transferring the business to loyal motivated key employees or family. This is nothing more, or less, than a clash of exit objectives.

Issue 35: Has Your Child Earned Ownership Interest In Your Business? A Decision Framework
Stan Briggs was perplexed and that’s why he told his advisor, "My son, Patrick, has worked in the business for the last twelve years. In that time, the business has tripled its revenues and its profits. I’ve started to think about scaling back my activity and I realize how important it is (for my own retirement income) that Patrick be motivated to continue to grow the company profitably. Since I’d like to have him own the business someday, is there a way to start transferring it to him now? It seems unfair to make him pay for all of the business value since he created so much of it and since he is so important to my financial security. My son, of course, agrees wholeheartedly with this analysis but I’m not so sure that his mother and sister are on the same page. What issues do I need to consider?"

Issue 34: Selling To Insiders: How Much Can You Sell Your Business For?
If you contemplate transferring your business to an insider (employees, children or co-owner) and you want to get paid the value of your business, then, generally speaking, the value of your business cannot exceed four times the true cash flow of the business (as illustrated in the previous issue of The Exit Planning Review™). We have defined true cash flow as the amount of pre-tax money distributed to owners via salary, bonus, distributions from the company such as S-distributions, and rental payments in excess of fair market rental value of the equipment or building used in the business. Let's look at how cash flow determines the sale price to insiders.

Issue 33: Cash Is King
It may not be uncommon for a business owner to hear that one of his friends sold her business for a "six times multiple." That owner’s first question to his own advisors typically is, "Can I get the same type of multiple if I sell my business?" The answer is "Yes and No." To understand these answers, we need to understand exactly what is being multiplied. To begin, let's turn to our favorite item to be multiplied: cash. One of the favorite phrases of investment bankers, and sellers of all kinds, is, "Cash is King." After all, when one is selling anything, cash can remove the seller’s risk in the transaction. When selling a business to a cash buyer, that buyer wants to know exactly how much cash the business is producing.

Issue 32: Estate Planning or Exit Planning?
The Exit Planning process should begins by determining your goals and objectives such as:

• The income you and your family will need after you leave the business; and
• Who you wish to transfer the business to — whether it is children, key employees or others.

And, Exit Planning involves the determination of business value and the capability of the business to provide you and your family future cash flow. So, too, does estate planning.

Issue 31: Winning The Beauty Contest
When owners decide to sell their companies what makes them choose one suitor -- or buyer -- over all the others? What is it that sets winning buyers apart from all the wannabes?

Issue 30: Due Diligence
One should not buy a company without first learning everything there is to know about that company. That learning process is known as due diligence. During due diligence a buyer, his accountant, his lawyer and any other professional advisor he employs should examine every aspect of every contract, procedure, relationship, plan, agreement, system, lease, manual and financial document. The due diligence process requires extraordinary amounts of time and attention so it is best initiated as soon as you, the owner, decide to sell the company. You must first identify the person in your organization who will assemble all of the documents and information your transaction attorneys will require. That employee may have a new full time, albeit temporary, job collecting, researching, and compiling information.

Issue 29: First Things First: Prioritizing Your Objectives
"You've got to be very careful if you don't know where you're going, because you might not get there." — Yogi Berra
It is not always easy to interpret Yogi. In this case, perhaps he is advising you to figure out just where you are headed in your business. As you near the time when you will leave behind the daily worries and stresses of business ownership, have you defined your successful exit? Because many owners haven't defined where "there" is, they may not know how to get there. Unless you prioritize your exit objectives, you may have too many objectives, they might conflict and you may not make much headway.

Issue 28: The Annual Planning Meeting
Readers of this newsletter should understand that Exit Planning is an on-going process. It begins with establishing your objectives and a valuation of your company and ends with your successful exit. Along the way, you and your Team of Advisors look at preserving the value of your company, protecting that value from creditors and increasing overall value. Also important is making contingency plans for your business should something happen to you before your planned exit and finally, coordinating your business plan with your estate plan for your family.

Issue 27: Eight Ways To Exit Your Company
According to Paul Simon, there are 50 ways to leave a lover. Not being as creative as Mr. Simon, we’ve only come up with eight ways for owners to leave their companies.

• Transfer the company to a family member;
• Sell the business to one or more key employees;
• Sell to key employees using an Employee Stock Ownership Plan (ESOP);
• Sell the business to one or more co-owners;
• Sell to an outside third party;
• Engage in an Initial Public Offering;
• Retain ownership but become a passive owner; and
• Liquidate.

Issue 26: Characteristics of a Well-Prepared Buyer
Assuming that all business owners (except for those forced to liquidate) will eventually sell or transfer their companies, attention is often focused on how to be a well-prepared seller. Setting exit objectives, making the appropriate choice of business entity (C or S Corporation), building business value and selecting a skilled Team of Advisors are some of the most important items on the "Savvy Seller Checklist." But what about the well-prepared buyer? What does one look like and why, as a seller, should you care?

Issue 25: Exit Your Business Without Leaving It
More and more frequently, business owners are telling their advisors, "I'd like to back away from my business. I'd like the freedom to do whatever I want, whenever I want. I don't want to worry about money. But if I sell, I'm unlikely to get enough cash in today's merger and acquisition marketplace. If I could cash out, where could I invest and generate a reasonable rate of return?

Issue 24: Using Multiple Entities To Save Tax Dollars
We’ve met few business owners who believe they should pay more income taxes every year. Instead, most are frustrated with the inability to engage in meaningful income tax planning that reduces the annual tax bite. Take Thomas Lamplighter for example. Thomas was a second-generation owner of a brickyard. His eventual Exit Planning objective was to pass the company to his children in a way that would avoid the gift and estate taxes he had to pay when his father had passed the business to him. But his children were still young and he first wished to provide them with the best possible education. Preferably, he wanted to find a way to have the business pay for his children's education, on a tax-deductible basis no less.

Issue 23: Protect Your Nest Egg
"Why do I need to create multiple entities to protect my assets?" Steve Pierce, owner of Pierce Floral Shops, asked. "I already have all of my business interests in a Limited Liability Company. Doesn't that protect me and my business?" The answer provided by his lawyer was about what you would expect. "Yes. And no."

Issue 22: Putting All of Your Eggs in One Basket
We have all heard the old proverb that it’s dangerous to put all of your eggs in one basket." But does the proverb apply in the world of business ownership? Specifically, is it a valid warning or just a worn-out cliché? It seems to make good sense to concentrate all of your business effort and ownership in one entity rather than creating multiple entities to own your business and its operations.

Issue 21: Having Your Employees Cash You Out of Your Business: Time is Money
Many, probably most, business owners would like to sell their businesses to their employees, but for one nagging problem: Their employees have no money. The desire to sell out to employees collides with the overarching need for financial security. Owners simply cannot risk selling a business to employees who have no cash.

Issue 20: Getting Started In The Exit Planning Process
First, understand that leaving your company is a process. If you’re already taking action to leave your business, ask yourself if you are approaching your exit in a methodical, logical, rational manner. Most owners do not undertake the necessary thought and planning that underpins good ownership transitions because they don’t know how to begin or exactly what to consider and analyze.

Issue 19: Vesting: Handcuffing Key Employees To Your Company
In this issue we focus on the last characteristic; handcuffing the key employees to the business. The goal of the handcuff is to keep the employee with the company the day after and even years after the bonus is awarded. To help achieve this goal, owners and their advisors typically incorporate several techniques into a stock purchase or non-qualified deferred compensation plan.

Issue 18: Characteristics of Successful Employee Bonus Plans
Too often, owners discover that the compensation plans they've put in place for key employees are sadly inadequate only when those key employees leave their companies for greener pastures. The departure of one or more of these key employees can not only complicate your daily business life, but it can slam shut the door on your exit plans. Without experienced management in place, it may be unlikely that you will be able to leave your business in style. In fact, you may not be able to leave it at all. Key employees are aptly named not only because they are key to the efficient and profitable operation of your business; they are also key to your departure. No one will want or be able to run your business without you, unless key management remains after your departure.

Issue 17: Bonus Incentive Plans for Key Employees
The purpose of installing a bonus plan for your employees is simply to motivate them to help you reach your exit goals. While owners differ in when they want to leave their companies or how they wish to leave, the underlying goal is consistent: to leave the company in style. This is the goal that any employee incentive plan should support. Employee incentive plans should be designed to support your fundamental exit goals by motivating your key employees to stay with your company.

Issue 16: Finding The Right Advisor
While owners may not be keen on paying us for this response (or nonresponse), it is the only honest advice to give an owner whose Exit Plan is obviously adrift. When an owner asks questions out of the blue like the ones above it can indicate that his advisors lack may experience as well as lack a coordinated approach to helping their business owner clients. They have not asked the questions necessary to start the owner on the path to a successful business exit.

Issue 15: Transfer Your Business And Avoid The Deal Killer: Taxes
When you started your business, you may have had issues on your mind other than choosing the best corporate entity form for an eventual sale. Now that you are thinking about your exit, however, entity choice (C or S corporation) has become critically important. That's because selling your company's assets inside the wrong entity can cost an extra 40 percent in taxes of your sale price: an unacceptable prospect for most owners.

Issue 14: Protecting Assets
To engage in Exit Planning, you must have a business to exit. Exit Planning assumes that the better the business, the easier and more successful the exit. Exit Planning also assumes that good businesses are not only profitable and well managed, but that they are protected from liability risks. Failing to protect your business value from legal liabilities is a fundamental Exit Planning failure.

Issue 13: Former Business Owners Express No Regrets About Selling Out
"I can't play golf every day."
"My wife wants to see more of me — but not at every breakfast, lunch, and dinner!"
"What do other ex-owners do after they've sold out?"
Failing to answer these concerns can create vacillation, reluctance, and ultimately, an unwillingness on the part of many owners to proceed with planning for their business exits. To examine these concerns, BEI assembled a panel of former business owners involved in the owner to former owner transition. All three reported that selling out was the "best thing possible for me and for my family." That said, each owner approached the sale differently and each has pursued different interests in its aftermath.

Issue 12: Sole Owner Continuity Plan
Making Sure the Business Continues When You Don't
Greg King barely survived helping his oldest son learn to drive and now it was time to teach his younger son. Before putting himself through on-the-road training one last time, Greg called his life insurance representative. "I have no co-owners to buy my company if I don't come home. What can I do?" Like many businesses, Greg's company (King Aviation Services) was not coowned. And, like other such businesses, there was no plan to continue the business if something happened to the owner. This may be true in part because owners (like Greg) may not think about it and in part because some advisors may not raise issues that they may not be educated in. (After all, how do you continue a business when the only owner goes to the Big Hangar in the Sky?)

Issue 11: ESOPs: Exit Opportunity for Business Owners
Aesop is famous for his stories that teach important lessons but are fictionaland often fantastic. Our topic today, ESOPs (Employee Stock Ownership Plans) is similar. Fictional and often fantastic claims are made about what ESOPs can and cannot do. ESOPs can help business owners to achieve a number of important Exit Planning goals-namely, selling a business tax-free to employees for full market value. But as with a fable, readers must take care to separate the important lesson from the fiction. What can or should you believe about ESOPs? Read on.

Issue 10: Transfers to Insiders
When transferring your company to insiders, a Low Value can put Dollars in your pocket. Owners of successful businesses valued between $5 and $10 million face two difficult exit problems:
1. Cash buyers are usually seeking larger companies; and
2. Owners are generally unwilling to assume a long-term installment note because of the risk of non-payment.
Given these hurdles, the owner has four transfer options:
1. Long term installment sale to employees;
2. Leveraged Management Buyout;
3. Employee Stock Ownership Plan; or
4. Modified installment/cash sale.
Let's look briefly at each.

Issue 9: Why Business Owners Fail to Plan
Franklin Taft was understandably a bit neurotic. He was increasingly anxious to begin planning for his eventual departure from his business but his concerns prevented him from proceeding. "I'm too busy working in my business to think about how to leave it. Besides, I don't know what to do-and neither do my advisors." Sound familiar?

Issue 8: Preserve Wealth: Give it Away! (Step 7)
The last step in your Exit Plan is Wealth Preservation Planning. But that doesn't mean you should wait until you are out of the business to begin actively preserving your wealth. In fact, if you wait until the value of your business is converted to cash, it may be too late to realize all of the benefits of wealth preservation. The most significant and powerful claimant to your wealth is the IRS — especially in the estate tax arena.

Issue 7: Planning for a Rainy Day (Step 6)
Business continuity planning is vitally important to your company. Without a well thought out "survival plan," the consequences to employees, customers and most importantly, your family and estate are dire. (Don't think that your estate will escape the notice of your business creditors.) Fortunately, there are a number of methods sole owners can implement today to help avoid the type of business collapse that Joe Carpenter's business experienced.

Issue 6: Transferring the Business to Children or Employees: A Recipe for Disaster? (Step 5)
How do you successfully transfer your business to a child, key employee or coowner? The most successful method is to follow a recipe that mixes, in equal measure, three key ingredients:

• One part: the ability, experience and dedication of the prospective new owners;
• One part: a company with strong, consistent cash flow and little debt; and
• One part: a transaction designed to prevent income taxes from eroding the cash flow available to you, the seller.

Issue 5: Getting Top Dollar For Your Business (Step 4)
Maximizing the amount of cash you receive upon the sale of your company is the business owner's equivalent of hitting the game-winning home run. To hit this one out of the park, you must know what to do before you approach the batter's box. So, too, with a sale to a third party.

Issue 4: Working On - Not In - Your Business (Step 3)
To increase business value, you must target those same elements of a business that professional buy-out experts believe drive a business's value upward and for which they are willing to pay top dollar. These elements— characteristics that both help to reduce risk and improve return — are commonly referred to as "Value Drivers."

Issue 3: What Is My Business Worth? (Step 2)
For many owners, the answer to one question determines their eagerness and ability to leave their companies: "How much is my business worth?" This question is indeed critical and answering it is the second step of your sevenstep Exit Plan.

Issue 2: Setting Exit Objectives (Step 1)
Like many owners, Ben had two choices. First, he could retire now and sell the company for cash — but not to his son and key employee. They had no cash and no bank would lend an amount even close to the amount of money necessary to close the deal. If Ben wanted to sell now and achieve financial goals, he would have to sell to an outside third party with sufficient cash. His alternative was to sell the company to his son and key employee — knowing he would have to wait six to ten years to receive the entire purchase price.

Issue 1: Why Exit Planning?
This issue of The Exit Planning Review™ and every subsequent issue will encourage you to work on — not in— your business. Your education about the Exit Planning process begins now. Proper knowledge and preparation can possibly mean millions of dollars to you when you ultimately leave your company. Start Exit Planning today and you can help to avoid the sad (but too common) fate of T J Construction.