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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.
Many, probably most, business owners would like to sell their businesses to their employees, but for one nagging problem: Their employees have no money.
With over half of today’s 9.5 million owners of established businesses reaching the retirement age of 50 years old or older it is likely that many of you will be ready to leave your business within the next decade or so1. What have you done to plan for that day?
When co-owners are united in striving toward common business goals such as growing revenue, building business value and increasing cash flow, the business dynamics can be wonderfully positive and strong. These owners move together to reach common goals. Contrast that bright picture with what can happen when, suddenly perhaps, the goals of the owners diverge.
Whether you plan to transfer your business to an insider or sell to a third party, demonstrating your company’s financial stability through sound financial statements is a crucial step in successfully exiting your business. When you first meet with an Exit Planning Advisor, he or she will want to determine your company’s current financial status, an assessment that involves reviewing:
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?
Another year is coming to a close and how many of us business owners took the necessary time to work "on" our business versus "in" our business? Business owners eventually come to the realization that they need to establish an exit strategy that consists of three primary exit objectives:
One of our favorite instructions to business owners is: Make Yourself Irrelevant!
When we talk to business owners about the value of Exit Planning, we are talking about orchestrating a business exit that fulfills their unique financial and personal goals. Since tackling a task of this magnitude can be daunting, owners sometime ask whether devoting the necessary time and money to this project is really worthwhile.
As advisors, we often hear from business owners some variation of the following comments:
Many business owners, and some of their advisors, believe that making a "gift" of ownership to an employee is an effective way to reward the employee or advance the ownership transfer process. They contend that a gift to an employee can be considered part of the annual gifts that an individual can make (usually called the "annual exclusion") so that the transfer is not subject to income tax, capital gain or gift tax. They believe that if the transfer is from the business owner personally, and not the company, it will be considered a gift. They are wrong.
“My investment advisor suggested that I sell my company to an ESOP. Is that a good idea?”
It may not be uncommon for business owners to call one of their advisers to complain that their lawyer (or CPA or financial adviser) 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.
Contemplating one’s own demise is far too depressing. So, let’s talk about someone else.
Steve Smith was no different than millions of other baby boomer business owners. The thought of leaving his business was never far from his mind, no matter how far away his exit might be. He daydreamed about transferring the business to his oldest daughter and perhaps to a member of his management team, yet he couldn’t gauge their passion for owning a business, and hadn’t tested their management skills.
According to a 2009 Deloitte survey ( Entrepreneurship UK: 2009/10 On your marks, Page 21), 24 percent of owners said they had not planned their business exits. Another 18 percent indicated that their exits would be “opportunistic” meaning that their plan was to wait for a third party offer.