Newsletters

Title	Preview
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
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.
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.
What Your Advisors Must Know	At some point, you may want to transition out of (exit) your business. You know you can’t do it alone and suspect that you need the assistance of others. Who, exactly, are those "others?" What professional advisors have the qualities, experience and training necessary to help you make that transition successfully? 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 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. Other reasons include:
Incentive Plans for Key Employees - First of A Two Part Series	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.
Incentive Plans for Key Employees Designing Performance Criteria - Second of A Two Part Series	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.
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.
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.
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. This process has been compared, not unfavorably, to the removal of wisdom teeth without anesthesia. This is an unfair comparison. Due Diligence takes far longer. Both processes involve trained professionals. Properly performed, both are relatively painless and are absolutely required for health and appearance sake.
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.1 Expect tax increases. For nearly all business owners contemplating a business exit, this prediction means that the tax bill due on the exchange of your ownership interest for cash may rise.
Owner Deferred 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.
Phantom Stock Plan — The Stock Plan That Isn't	Faithful and long-term readers of The Exit Planning Review™ are familiar with incentive plans for key employees. In the first of two prior issues, we covered the "whats" and "whys" (the goals and the four basic elements of) successful incentive plans. (Please email Hank Weatherby to receive that issue.) The second in that series discussed how to design performance criteria that help give a successful incentive plan its punch. (To receive a copy of that issue, please email Hank Weatherby.)
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
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? First, you could offer stock. Doing so, however, is probably premature and may be expensive. After all, she might not be the right fit, long term or even short term. In addition, she may not even want ownership (for reasons we have discussed in previous issues of The Exit Planning Review™).
Passing The Smell Test	Almost reluctantly, Casey Cummings decided to sell his business to a friendly competitor. When we met, Casey wanted to know if he’d made the right decision for his company and for himself. In short, he wanted to know if the contemplated sale passed 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.
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.
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.
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.
The Loss of Key Talent—You! The Third of an Owner’s 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.

Weatherby & Associates, PC

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