#30: Reducing the Tax Bite When You Sell Your Business
When planning for the sale of a business, most business owners are not only interested in saving taxes at the business or corporate level, but at the personal level as well. The sooner you begin to plan your exit strategy, the greater the tax savings that may be realized.
# 29: Business Valuation 101
A good business valuation can be used as a tool to help any business improve and maximize its value to its owners and to future potential buyers. Contrary to what many business owners believe, the value of a business is not necessarily net profit, or gross sales multiplied by some industry “rule of thumb.” The analysis of the whole business and the environment in which it operates is a business valuation.
#28: Choosing an Exit Strategy
There are several choices available to every business owner when it comes time to exit the business. An exit strategy is a long-term plan for owners of a business to divest themselves of their ownership interest and transition the business to others. Exit strategies vary widely by owner and type of business. Whatever the goals are, the odds of successfully exiting increase dramatically when the business owner plans well in advance with the help of a professional advisory team.
#27: Avoiding the Business Owner Retirement Trap
So you've spend that last few decades building your successful business and profiting from your your hard work. Now, things are about to change, and you've begun to consider retirement possibilities. There will be challenges you will face, but with an experienced team of advisors you can begin your accelerated retirement planning schedule.
#26: Transferring the Company to Employees with an ESOP
An ESOP is a qualified employee benefit plan under ERISA that provides company employees with an ownership position in the company. Generally speaking the company contributes cash to purchase company stock for the benefit of the employees. To assure that the rules for an ESOP are met an ESOP Trust is established and a trustee is appointed to oversee the plan. Most full-time employees with at least a year of service are covered by the plan.
#25: When a Business Owner Dies Without Planning
Most often, when sole proprietors die without estate planning, their business dies with them. Whatever value they once had dissipates until the only value is the inventory and office furniture. When a partner dies without planning, the heirs of the deceased partner may inherit his share of the business, much to the dismay of the surviving partner.
#24: Planning for Partnerships
When the business is established as a partnership, there are special planning challenges for when a partner dies, retires, divorces, enters bankruptcy, or voluntarily departs the partnership. The business owner typically wants a buy/sell agreement in place with his partners that will support the purchase of his shares or the partners’ shares upon death, disability, or retirement.
#23: Caring for the Child who does not work in the Family Business
If business owner clients desire that each child receives an equal dollar value at their passing, there are essentially two ways of making that happen. One way is to leave only non-business assets to the non-active child if those assets are equal to (or relatively close) in value to the share of the business.
Keep in mind that if some of those assets are business real estate the business owner may not want to distribute those to the non-active child, since this still leaves that child somewhat dependent on the success of the business for what they're receiving. However, this is a better approach than having the inactive child receive an ownership interest directly in the business.
#22: Financing a Business Start-Up or Expansion
When it comes to raising money for a business start-up or expansion, business owners often ask if it’s better to use debt or equity financing. In most cases, it’s better for the business owner to use public debt sources (banks), before going to private equity sources such as venture capital firms and private equity groups. Using private sources will usually cause the equity ownership of founders and early investors to be greatly diluted.
#21: Business Legacy Planning
Ernest Becker, the Pulitzer Prize-winning psychologist and author of The Denial of Death wrote, “…what man really fears is not so much extinction, but extinction with insignificance.” For some business owners, survival of the business beyond their lifetime is viewed as the owner’s legacy. For others, it includes the business…and much more.
Legacy Planning is about creating an estate plan that reflects your core values and beliefs and allows you to pass them on to your loved ones. In doing so, you are able to guide them with your wisdom, help them to understand more fully your beliefs, and set in motion your hopes and dreams for each of them. It allows you to create an estate plan that uses your personal wealth as a means to accomplishing the long-term goals which define you as a person.
#20: I Like My Business, but I LOVE My Family
Life is never easy for the spouse and family of an entrepreneur. And that was certainly true of Tim’s family. Over the years, they had to learn to cope with a certain level of insecurity and fear of the unknown, to live through periods of excitement and depression, through days of exuberance and days of anger, and through feast and famine. And though the business went through many days of uncertainty, Tim was always sure about one thing – he loved his family and they were more important to him than the business. Most business owners feel the same way.
Nothing seems to stretch the familial bonds further than when it’s time for the successful business to change hands – either to be passed to the children, or to be sold to a non-family member. The impact on the family can be wonderfully rewarding, or it can be devastating. The difference usually depends on how much advance planning has been done by the owner.
#19: The Bottom Line about the Bottom Line
The role of sales in any business is to develop prospects and close new business. It is the primary source of revenue, and though expense management also plays an important part, the sales function is the biggest contributor to the “bottom line” of profitability.
The role of sales can be distinguished from the role of business development. Business development typically looks at more non-traditional ways to drive new business – strategic partnerships, referral sources, or perhaps wholesale arrangements.
#18: Don't Send the IRS More than You Have To!
Every day in America there are stories of families losing their multi-generational business or family farm because they had to liquidate in order to pay estate taxes. Others held onto their business, but depleted their cash reserves to satisfy the IRS – and the business suffered for several years thereafter. The sad thing is that these circumstances could easily be avoided with proper planning.
Most estate planners strive to reduce the impact of estate taxes as much as possible. Tools and techniques such as irrevocable life insurance trusts, family limited partnerships, gift trusts, and others may be employed to reduce the estate tax.
#17: Getting the Right People on the Bus
"You are a bus driver. The bus, your company, is at a standstill, and it’s your job to get it going. You have to decide where you're going, how you're going to get there, and who's going with you.
Most people assume that great bus drivers (read: business leaders) immediately start the journey by announcing to the people on the bus where they're going—by setting a new direction or by articulating a fresh corporate vision.
In fact, leaders of companies that go from good to great start not with “where” but with “who.” They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline—first the people, then the direction—no matter how dire the circumstances."
JIM COLLINS, Author of Good to Great
#16: Is It Time to Build a Business Advisory Team?
Some entrepreneurs can successfully run their business for years on the strength of their own passion, intensity, business smarts, and a little bit of luck. They don’t believe they need advice, and don’t ask for it. They might have an attorney on call for business paperwork, and a CPA who does their tax returns every year, but they’re just “hired hands” like the rest of their employee team. Life is good “at the top.”
#15: The Imaginary Business Plan
Rick has plans for his business. He knows what he wants to accomplish, and generally how he is going to get there. He has never written these plans down, and never shared them with anyone. Why would he? They are his plans. They belong to him and no one else. In fact, he’s more than a little worried that if he makes his plans public, someone will steal them! So he keeps them in his brain where he ponders them, refines them, and expands them from time to time. Rick’s plans are all in his head – part of his imagination. In other words, Rick has an imaginary business plan!
#14: What, Me Worry? Part 2
Asset Protection Strategies for Business Owners (Pt. 2)
In our last newsletter, we met Tom – a successful businessman who had everything going for him until he was unjustly sued for an accident that occurred with one of the machines he sells. In an effort to keep the same thing from happening to you, we began a discussion of asset protection strategies, including those that are most common and easiest to implement. In this issue, we’ll look at some of the more complex, and often stronger asset protection strategies.
#13: What, Me Worry? Part 1
Asset Protection Strategies for Business Owners (Pt. 1)
For more than 60 years the mascot of MAD Magazine, Alfred E. Neuman, has lived by the philosophy “What, Me Worry?” Unfortunately, a business owner we know (we’ll call him Tom) was living by the same philosophy. Tom went about his business selling construction equipment with great enthusiasm and optimism, providing great service, and creating happy customers. He had an instinctive knack for making friends and influencing people, and his business was very profitable. So you can imagine Tom’s surprise when he was sued for a fatal injury suffered by one of his customers who was using one of Tom’s machines improperly.
#12: Keeping It All In The Family
Vito Corleone had built a vast empire in his 50+ years in the olive oil business. It was important to him that the business remained in the family, and he expected his three sons to take over when he was gone. They were already involved in the business, and quite passionate about it, and each had a defined role. Vito’s wife Mary was a stay-at-home Mom who was never really involved in the business, and knew very little about the day-to-day operations. Vito consulted with his top executive and in-house counsel, Tom Hagen, on ways to ensure the business would pass to the three boys. Tom suggested several ideas for Vito’s consideration.
#11: I Love My Business - How Do I Get Rid Of It?
Buddy Valastro has been known for some time as the premier wedding cake baker in Hoboken, New Jersey. But his fame spread to New York City and beyond, and things really started to take off when he was asked to do a reality TV show about the cake business. Buddy’s bakery has become a tourist attraction, often seen with lines of people stretching down the street and around the corner. But fame is a hard slave-master. Buddy is tired out, and ready to retire. There’s no “Buddy, Jr.” in line to take over, so Buddy has started thinking through his options for an exit strategy.
#10: Do I Need a Buy-Sell Agreement?
Sebastian and Kathryn met as project managers for a Fortune 500 company. After a couple of years of collaboration, they decided they could accomplish more and make more money in their own business. They’ve worked out most of the details about their individual roles, financial contributions, how they’re going to raise additional capital, and even who else they might invite to join their venture. Their attorney advised that they also give some thought to a “buy-sell agreement” – a term that was new to both of them.
#9: There's a System for That!
Tammy Hawthorne was not enjoying her business as much as she used to. It seemed like she was always “putting out fires” instead of working on the really important things that would grow her business and increase its value. Although extremely organized in her approach to business, Tammy was suddenly feeling overwhelmed. She seemed to be “bouncing” from one problem to another, and she felt like her managers were delegating work to her, instead of the other way around. Tammy decided that her organization wastoo haphazard, and that she needed to implement some systems. But where should Tammy begin?
#8: Your Business 'S.W.O.T. Team'
Chris Riggins had called a meeting of his primary managers to discuss the current state of his manufacturing business. Chris was feeling a bit overwhelmed by what his company had become over the 10 years since its founding. There were more moving parts than ever before, and he felt like he might be missing important things that could impact the general health and future prosperity of the business. Chris asked his business advisors how he could get a better handle on things, and they suggested a “S.W.O.T. Analysis.”
#7: Mind Your Business Entity - Part 1 of 2
John Barker started his small business from scratch, and has always run it as a sole proprietorship. Now that his revenues have become predictable, and he’s added employees, he knows he needs to operate more formally as a business entity. In fact, his accountant and attorney have been bugging him to make some changes. So how does John choose between the various business entity options?
#6: My Business is Worth How Much?
Richard Morgan was thinking about retiring. In fact, if he was honest with himself, he had indeed decided to retire, and he was really just trying to decide when. He didn’t have any family members to which he could pass the business, and knew his employees were not in a position to purchase it. He knew the most likely buyer would be one of his competitors. He wondered how much they might be willing to pay, and he realized that he didn’t really have a clue how much his business was worth! So Richard decided to hire a business appraisal firm to determine the value of this entity into which he had poured his life for the past 20 years. When the appraisers revealed the results of their research, Richard did a double-take and said, “My business is worth HOW much?”
#5: The Myth of the Indestructible Entrepreneur
George Nelson was a Type A personality and a serial entrepreneur. He was the center of attention in any room, a gregarious man loved by everyone. He ran his businesses with passion and joy, and was appreciated by his employees. His pride and joy was the Harley that he drove everywhere, and he was known for pushing the motorcycle’s limits. George drove the bike to work on a clear day that turned from sunny skies to a thunderstorm by the time he was ready to go home. Undeterred, he pulled out his rain gear and took off. They say that the truck driver’s visibility was impaired by the rain, and he never saw George as he came around the bend in the road. Fortunately, George survived the encounter, but doctors aren’t sure how long he’ll be in a coma, and they believe he may be permanently disabled.
#4: Creative Uses of Life Insurance for the Business Owner
Bill and Mary Smith own a successful family business that was recently appraised with a value exceeding $15,000,000. While they’re extremely happy about their success, the appraisal results have raised some new concerns. For one thing, they are now facing the prospect of paying federal estate taxes and state inheritance taxes. They recognize that most of their wealth is tied up in the business, and there’s not a lot of cash available for taxes. And since they want to pass the business to their sons who are currently working with them, they don’t want the business to be sold to pay taxes.
#3: The Best Way to Lose a Business
Bill Johnson is a typical business owner and entrepreneur. He’s a visionary and a big-picture thinker. He’s a risk-taker, but his risks are calculated and he’s wise in the ways of business. Bill’s day is filled with the typical challenges of a small business owner: finding new customers, serving current customers, dealing with employees, keeping an eye on the financial statements, monitoring quality, and planning for the future. Bill works long hours and loves what he is doing. He doesn’t have time for much that isn’t business-related, but he looks forward to a time when things “slow down” and he’ll be able to enjoy the fruits of his labor with his family. And most importantly, he looks forward to passing a successful family business to his children.
#2: New Book on Planning for Business Owners
Book publisher Collaborative Press has announced the release of its latest book, "Being in Business is a Funny Thing-Getting Out is Not! The Business Owner's Guide to Growing & Transitioning the Business."
#1: New Book on Estate & Financial Planning
July 1, 2011, Omaha, NE – Book publisher Collaborative Press has announced the release of its latest title for small business owners, Being in Business is a Funny Thing – Getting Out is Not! The Business Owner’s Guide to Growing & Transitioning the Business with myself as a contributing author.