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A Fair Split?

Divorcing Your Business Partner Can Be Tricky

Divorcing A Business Partner | Ohio CPA Firm

While we always recommend that couples have a business valuation conducted earlier (optimally before getting married) rather than later, we realize that it doesn’t always happen this way. It’s just important to remember that there are still options available. Keep reading to learn more.

The divorce process can be that much harder when a married couple is faced with the prospect of splitting the assets of a business they both helped build. Most of the time they can work out a friendly agreement, but other times big disagreements – especially concerning the business’s value – can wreak havoc on the divorce procedures, resulting in higher legal costs and a longer overall process.

Read Also: Determining Separate Property in a Divorce Settlement

In our experience, there are really only two ways to come to a true and fair valuation of a business when the business’s owners are going through a divorce.

  • The Collaboration Model: Using this model, we will conduct a valuation of the business and discuss findings with all parties involved. Then, discussions will take place with each owner’s attorney in an attempt to address any questions or concerns. In the event of litigation, your valuation team will be present at the court proceedings to offer expert testimony on the matter.
  • Marital Balance Sheet: This model requires your valuation team to itemize the business in a way that’s organized and easy to read. The prepared balance sheet will then be presented for review. At that time the business partners will then be able to take the compiled information to their respective attorneys to determine their next course of action.

These two options are optimal for those looking for peace of mind while minimizing the cost of drawn-out litigation and we’ve found that when divorcing couples work with a valuations expert, rather than leaving the decision up to a judge, they are more likely to realize a more favorable outcome.

While we always recommend that couples have a business valuation conducted earlier (optimally before getting married) rather than later, we realize that it doesn’t always happen this way. It’s just important to remember that there are still options available.

If you are currently filing for divorce, and there is a business involved, make sure you go into the divorce proceedings with the necessary information. Contact Rea’s business valuations team to learn more.

By Tim McDaniel (Dublin office)

Check out these articles to learn more about how to handle the divorce process:

How Does Getting Divorced Impact Your Taxes?

Is Your Business Ready for a Year-End Financial Check-Up?

Do You Need a Business Prenup?

How ESOPs Align Shareholder And Employee Interest

ESOP | Succession Planning | Ohio CPA Firm

If you sell to an outside third party, whoever buys it may not maintain the employees or your business philosophy. But with an ESOP, you have a better chance of keeping your business philosophy in tact and your employees on the payroll. Read on to learn more about ESOPs.

As baby boomer business owners age, there is a pressing need to select their business exit strategy. One option to consider is an employee stock ownership plan (ESOP), where the business owner sells the company — up to 100 percent of the stock — to their employees.

This option continues to grow in popularity for a variety of reasons, the first reason being that with employee ownership comes the motivation to work harder to build stock value. Employees ultimately tend to have more pride going to work, and, if the company does particularly well, many long-term employees will be rewarded with a nice nest egg when the time comes to retire.

If you are wondering if an ESOP is the right plan for you, read on to learn more about this option.

Growing Popularity

While ESOPs haven’t necessarily exploded in popularity, they are more popular today than they used to be. In the past, the complexity intimidated business owners and many lenders were reluctant to fund ESOPs. As knowledge about ESOPs continues to spread, owners and lenders are more apt to choose this route.

Does An ESOP Make Financial Sense?

ESOPs are costly to establish because you need to hire an attorney, a trustee and a valuator. Therefore, they aren’t a good idea for companies without very much profit. A good rule of thumb is that you need at least $500,000 in ongoing profit for it to make economic sense.

Additionally, because an ESOP is a leverage transaction and requires a bank loan, it’s important to have a leadership team that is able to manage the business and pay back the loan over time.

A stable workforce with little turnover is also important. The ESOP pays employees, usually over a period of five years, when they quit or retire; and it’s usually a large portion of their retirement plan.

What Are The Risks?

Like any owner, employees face the same advantages and disadvantages of owning a business — there’s higher risk and reward.

Some ESOPs replace other retirement plans for employees and if all of their retirement is in your company stock, they can be severely hurt if the company doesn’t do well or goes bankrupt. Don’t encourage this. You’ll want to allow for diversification in the employees’ retirement planning strategy.

The Department of Labor and IRS regulate ESOPs, so there will be more oversight from outside parties. Also, with new shareholders, some things like how much money you and the company makes is available to your employees. An ESOP might be your best exit strategy if you:

  • Would like your legacy to continue.
  • Want your employees to serve as owners.
  • Don’t mind the additional oversight and cost.

Also, remember that you aren’t locked into an ESOP forever. If the ESOP no longer meets the needs it was set up for, you can terminate the plan. But just like establishing an ESOP, reversing your decision does not come cheap.

If an ESOP sounds like an exit strategy you would like to learn more about, the very first step is to call in a professional valuations team. You’ll want to have somebody come in and do a feasibility study of what it actually would look like for your business. This study will determine what the value would be and what after-tax proceeds a business owner could expect. Once you have a better picture, you will then be able to determine whether to proceed, go another way or defer until your business is healthier.

Email Rea & Associates to learn more.


This Q&A was originally published in the Insights Accounting section of Smart Business on May 1, 2015. Click here to read the original piece. 

 

Strategic Planning: The Road Map to Success

Strategic Planning | Business Journey | Ohio CPA Firm

The course is set, it’s time to go… but wait! What’s the plan? Read on to find out how your strategic plan can help you map your journey toward success.

Success rarely just happens. In fact, it takes a lot of hard work, planning and direction from your management team. Furthermore, it requires company-wide dedication to a comprehensive road map called a strategic plan.

A strategic plan not only allows management to align resources, it encourages associates to work toward a common goal while identifying areas for improvement and providing direction in responding to external and internal business issues. Companies that implement a strategic plan will also benefit from improved internal communication and innovation.

Here are the stops you need to take on your road map to success:

Read Also: From Good To Great: How To Create A Strategic Plan That Propels Your Business Forward

First Stop: SWOT Analysis

The planning process begins with a thorough review of the company’s strengths, weaknesses, opportunities and threats. How can the company take advantage of strengths and opportunities? How can it minimize the exposure of weaknesses and threats? Analyzing a company’s performance record, outlook and business plan can provide a better understanding of the past and clear guidance for the future.

Second Stop: Focus Your Energy

In simple terms, a strategic plan paints a picture of what a company should look like at some point in the future, say three to five years. Once designed, the plan should provide clear guidance toward attainable, timely goals. The ability to set these goals and stick to them can determine a company’s true potential for success.

Destination: Success

Business owners obviously want their companies to be successful. And a number of owners want their companies to survive so they can be successful for future owners, too – especially when those future owners are family. Only long-term commitment to a sound strategic plan can ensure this success.

Our team has assisted many businesses with their own strategic planning initiatives. Email Rea & Associates to learn more or check out the articles below for additional tips and insight.

By Tim McDaniel, CPA/ABV, ASA, CBA (Dublin office)

Check out these articles for additional strategic planning insight:

Manage Your Revenue To Plan For Growth

Succession Planning Tips

 How To Plan For What Comes Next

Gifting a Return? Think Business Valuation

Why You Should Follow IRS Regulations Closely

Gift Tax Return | IRS Regulations | Ohio CPA Firm

Don’t file that gift tax return without first consulting with a qualified business valuator. Read on to find out why.

Are you thinking about filing a gift tax return without first having a valuation performed on your business? You may want to reconsider. After all, the last thing you want in this critical stage of your life is to find yourself under the intense scrutiny of the IRS. Needless to say, working with a business valuations expert can provide the peace of mind you need as you attempt make a smooth transition into retirement.

Read Also: Grow the Value of Your Business

Remember that the more complete and comprehensive the information filed with your return is, the more readily the IRS will be to be able to identify whether it should be examined. Oftentimes, the information included in your business valuation report is enough to satisfy the inquisitive eye of the IRS. On the other hand, disregarding your business valuation can result in some pretty significant drawbacks.

Risks Of Foregoing A Business Valuation

  • Neglecting to perform a business valuation is the equivalent to guessing about business is actually worth – and chances are really good, that even your most educated guess will be incorrect. As your most valuable asset, you can’t afford not to know your business’s true value.
  • Submitting a properly prepared business valuation by a qualified business valuator alongside your gift tax return triggers a three-year statute of limitations for the IRS to come back and make adjustments to your tax rate. Without a business valuation, you have no statute of limitations protection, which means the IRS can come back at any time after the initial three years to assess gift or estate taxes at higher rates.
  • A more thorough examination of your tax liability can be performed by the IRS which will cost you time, money and peace of mind. Submitting a quality business valuation with your tax return will likely provide the IRS with all the information needed.

Protect Yourself

Not only will a business valuation help you avoid the consequences outlined above, you may be able to take advantage of certain valuation discounts – at least, while they are still allowed.

At the end of the day, keeping accurate records and maintaining regulatory compliance ultimately makes your wealth management strategy easier and working with a proven business valuations expert is an essential component of this strategy. After all, nothing is more frustrating than having a plan in place only to have it fail because of simple mistakes. You have enough on your plate, and focusing on the current state of new and pending tax legislation shouldn’t be distracting you from your day-to-day responsibilities.

Email Rea & Associates to learn how our business valuations team can help you establish an effective plan for you and your loved ones.

By Tim McDaniel (Dublin office)

For more insight about the importance of business valuations, check out these articles:

How to Get the IRS to Close a Valuation File
Do You Have a Realistic Value of Your Business?
How to use Financial Statements to Analyze the Performance of a Business

WARNING: Free Business Valuation Offer Is Unbelievable

“All that glitters is not gold.”
William Shakespeare, The Merchant of Venice

Free Business Valuations | Caution | Ohio CPA Firm

Does it make sense that you spend five minutes filling out a form and send in a few financial documents and within days you will receive back an informed and accurate valuation report? Are you going to make critical decisions about your future based on an individual hundreds miles away throwing your financial data into a canned valuation software program? Really? Read on to discover why “free” may cost you more in the long run.

As a business owner, you’re probably no stranger to the mental acrobatics associated with maintaining an economically viable business. I’m willing to bet that you fall asleep thinking about ways to cut your business expenses, generate revenue and increase your company’s overall value – all while making sure you can save enough for your own retirement. So when you’re approached out of the blue by somebody who wants to offer you a free business valuation, your decision is probably no-brainer. After all, you know that a business valuation is critical in your effort to plan ahead. And let’s face it – free is too good to pass up!

In some industries, it’s become a popular business model to contact prospective or existing business clients to offer them a free business valuation report. But what the sales rep won’t tell you is just how expensive these free services can be.

Read: Grow The Value of Your Business

Is ‘Free’ Worth It?

Not too long ago, I met with a gentleman who sold insurance that was offering free business valuations.  He stated that his company had a room full of CPAs and valuation professionals that prepare these valuations. The client only has to spend five minutes on a questionnaire and send in three years of financial data and within a few days the client would have a clear picture of what their business is worth.

Out of curiosity, I asked to take a look the valuation report his company typically gave to the client once the valuation work was complete. Within minutes of reviewing the document, it became clear that not only were his clients given inaccurate information, they were being groomed to purchase more insurance than they needed.

Does it make sense that you spend five minutes filling out a form and send in a few financial documents and within days you will receive back an informed and accurate valuation report? Are you going to make critical decisions about your future based on an individual hundreds miles away throwing your financial data into a canned valuation software program? Really?

If you decide to make the purchase based on the information that was found on this biased report, this valuation will likely end up costing much more than you ever would have ever paid under normal circumstances. On the other hand, if you were to invest in an actual business valuation expert, instead of fretting about your expenses you could concentrate on revenue growth. Because when you hire a business valuation expert, you’re hiring a professional who will take the time and energy to really get to know you, your business and its prospects for the future. Someone who has not only made the art of business valuations a career, but someone who has a proven track record of helping businesses across all industries grow their value by developing and implementing strategies designed to increase future cash flow, decrease business risk and increase growth rate.

Not Free, But Priceless

Email the Rea & Associates Business Valuation Team to find out how business valuation experts can help you grow and better manage your business. The benefits of a Know & Grow Valuation include general business planning, owner’s succession and financial planning, buy-sell agreement values, exit planning strategies, and more.

By Tim McDaniel, CPA/ABV, ASA, CBA (Dublin Office)  

 

Related Articles

How To Use Financial Statements To Analyze The Performance Of A Business
Do You Have A Realistic Value Of Your Business
Valuation Formulas In Buy-Sell Agreements

 

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Rea & Associates Inc. | 5775 Perimeter Drive, Suite 200, Dublin, Ohio 43017-3224
phone 614-889-8725 | fax 614-889-0159