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Define ‘Rich’

Define 'Rich' | Exit Strategy | Ohio CPA Firm

Having worked with business owners for more than two decades, I have discovered that, when selling their businesses and embarking on retirement, owners feel “rich” for a variety of different reasons – and not all of them include “abundant possessions and material wealth.”

Several years ago, when I was working on publishing my first book, Know And Grow The Value Of Your Business, I found myself locked in battle of wills with my publisher about the subtitle. I wanted to use the phrase: “Treat Your Business Like an Investment.” But my publisher had other ideas.

In the end, I lost the argument and the subtitle was changed. After all, it’s the publisher’s primary responsibility to sell books and, to that end, I had to concede that “An Owners Guide to Retiring Rich” was, in fact, more compelling. That being said …

Read Also: Do You Have An Exit Strategy?

It’s Not Always About The Money

Of course most people, if given the choice, would rather retire rich than poor. But what does “rich” actually mean. After all, it’s not every business owner’s dream to sell their business for top dollar for the purposes of funding a luxurious retirement lifestyle. No. To me, the word “rich” is much more than a bank account balance.

Merriam-Webster provides us with multiple definitions of the word “rich.”

Having abundant possessions and especially material wealth
__________
A) Having high value or quality
B) Well supplied or endowed (a city rich in traditions)
__________
Magnificently impressive
__________
A) Vivid and deep in color (a rich red)
B) Full and mellow in tone and quality (a rich voice)
C) Having a strong fragrance (rich perfumes)
__________
Highly productive or remunerative (a rich mine)
__________
A) Having abundant plant nutrients (rich soil)
B) Highly seasoned, fatty, oily or sweet (rich foods)
C) High in the combustible component (a rich fuel mixture)
D) High in some component (cholesterol-rich foods)

Having worked with business owners for more than two decades, I have discovered that, when selling their businesses and embarking on retirement, owners feel “rich” for a variety of different reasons – and not all of them include “abundant possessions and material wealth.” From selling their business for top dollar, seeing the next generation successfully continue the business or assisting a charity with the wealth they’ve created from the business to watching long-term employees take ownership of the business or even staying in the business and being productive into their 90s, “rich,” when it comes to exiting your business, is as much a state of mind as it is a about monetary wealth and possessions.

What Does ‘Rich’ Mean To You?

What exit strategy will bring you the greatest long-term satisfaction and fulfillment? There is no right or wrong answer and only you can decide what it is that you really, truly want. After all, the definition of “rich” is different for everyone. Once you decide on what “rich” means to you, we can develop a plan that will help get you there.

As Ben Stein (American actor, writer, lawyer, and political/economic commentator) once said, “The first step to getting the things you want out of life is this: Decide what you want.”

Email Rea & Associates to learn more about your options for an exit strategy or to speak with a member of our business valuation team.

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

Looking for more exit strategy insight? Check out these articles:

3 Exit Planning Pro Tips To Help Grow Your Company’s Value

How Will I Know When I’m Ready To Exit My Business?

How To Communicate To Your Employees That You’re Selling Your Business

Succession Planning Is Especially Important for Family Owned Businesses

Family-Owned Business | Succession Plan | Ohio CPA Firm

All those who are impacted by the success and failure of the business should be educated about the options available and should have input in the direction of the company’s succession plan. Therefore, once you make the decision to start the process you should put aside some time when your entire family can come together and review personal goals and objectives as well as the company’s current position in the marketplace.

Did you know that only three in 10 family owned businesses have a written, formal succession plan in place? Another statistic tells an equally sobering detail: 12 percent of family owned businesses do not survive past the second generation of ownership, largely due to poor succession planning. Sure, it may be a difficult conversation to have. But it’s one that you must make time for if you wish to ensure the continuation of your business.

Where to begin

All those who are impacted by the success and failure of the business should be educated about the options available and should have input in the direction of the company’s succession plan. Therefore, once you make the decision to start the process you should put aside some time when your entire family can come together and review personal goals and objectives as well as the company’s current position in the marketplace. During this conversation, you should also determine how members of your family want to be involved in the future of the business.

The answers to the questions above will help you determine if you’ll want to identify and train future leaders from within, consider an outside successor or transition your business to a new owner. If the latter option becomes the most realistic, you’ll want to determine your company’s value through a formal business valuation. A trusted valuation consultant can perform this function as well as help you sort out details such as how much you retain after taxes and the best timing for a transition.

The dynamics within a family owned business are complex, with family members who may be candidates for leadership roles who may not have the knowledge, ability, passion or leadership to make it happen. History and emotions can also cause the wrong decision to be made or cause inactivity, which can doom the business or family relationships. An outside business advisor can objectively assist in the company’s succession discussions and planning.

Once you’ve developed your succession plan, don’t forget to communicate the future course of your company, as well as the timetable, to your employees. They know that a transition will occur at some point in the future, and with no communication, they may assume the worst. You’ll want to establish a transition team to make sure the succession goes as smoothly as possible on the schedule you’ve established.

If you are ready to start on your company’s succession plan, email the business valuation experts at Rea & Associates for assistance.

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

Looking for more succession planning insight? Check out these articles for more great tips:

How To Fund A Buy-Sell Agreement

Transitioning Your Company To A New Leader

How To Be A Visionary Leader

How to Fund a Buy-Sell Agreement

Business Valuation | Estate Planning | Ohio CPA Firm

Don’t underestimate the importance of estate planning for your business. If you don’t have a plan in place, you could be throwing your hard-earned money away. Read on to learn more.

How important is proper estate planning for business owners? Consider this real-life scenario. The majority owner of a successful business, which had a buy-sell agreement in place, died unexpectedly. The buy-sell agreement was funded by a life insurance policy that was owned by the company. A valuation showed that the value of the company was significantly less than the value of the life insurance proceeds.

If the owner had a valuation done before purchasing the life insurance, he could have saved a significant amount of insurance premiums. In this case, the company gained from the policy, but it could have easily overpaid had the majority owner lived longer.

Don’t underestimate the importance of estate planning for your business. Some common funding options available for buy-sell arrangements are as follows. You can use just one, or a combination of two or more. Either way, if a triggering event were to happen, having this set forth in the buy-sell agreement will make it easier on both sides:

  • Cash. This would also include corporate assets in excess of operating requirements external borrowings. If your company has a healthy balance sheet, it could borrow funds from the bank.
  • Shareholder note. The buy-sell agreement would call for a note for the redemption amount and would set the terms.
  • Life insurance. When it is available and affordable.

If you need estate planning for your business, contact the business valuation team at Rea & Associates.

Protect What Matters Most

Family Business Assets Could Be In Jeopardy

Family Limited Partnership Debate | Know & Grow

For years, the Family Limited Partnership (FLP), has proven to be a safe way to manage family businesses and personal assets – much like one would protect a treasured collection of sea shells. Read on to learn why that tactic may be in jeopardy.

As a child growing up by the beach, I would spend countless hours scouring the shoreline for shells and sea glass. Some of my most treasured finds were sand dollars, purple clamshell pieces and blue sea glass – the quest for which would create a mostly friendly competition among little girls. The collection was undoubtedly one of my most prized possessions.  So, to keep it safe, I would store my treasures in a strong container on a high shelf – hidden away from my siblings’ curiosity. After all, it’s only natural to want to protect those things that matter most to us.

Families that have worked hard to build and grow their small businesses are particularly sensitive to economic risk. The Family Limited Partnership (FLP), an entity designed to centralize family business or investment accounts, has been proven to withstand the test of time for business and estate planning purposes. Not only has it provided owners with a strong “container” to manage family business and personal assets, it offers families the option of a metaphorical “high shelf” to keep assets  safe from the overly sticky fingers of certain outside interest holders and tax collectors.

However, recent legislative efforts have sent this ordinarily stable vessel into the proverbial eye of a regulatory storm.

Read Also: Gifting a Business Interest?

The Voice of the Small Business Owner

Last August, the Treasury Department proposed new Section 2704 regulations, a measure that would curtail the valuation discounts that have been typically applied in estate planning for family businesses over the past 25 years.

According to an article by Ashlea Ebeling, staff writer for Forbes, “the proposed rules had drawn 9,477 comments and resulted in the largest crowd ever at a Treasury public hearing.” The hearing, which was held in early December, turned into an all-day affair, included emotional pleas from small business owners, as well as numerous expert technical critiques.

In response to the concern of small business owners within their constituencies, lawmakers have also responded with comments and measures of their own.

Congressman Warren Davidson (R-OH) said the proposed rule changes undermine settled law, and “effectively increase the death tax by 30 percent or more on family-owned businesses.

“One of the industries hardest hit by the estate tax is family-owned farms that get passed on from generation to generation – an embodiment of the American Dream,” said Davidson.

Davidson and Senator Marco Rubio (R-FL) sponsored individual pieces of legislation (H.R. 6100 and S. 3436, respectively) in an attempt to block the IRS measures, and reaffirm Congressional power “to lay and collect taxes” according to the Constitution.  Both bills have garnered support from numerous co-sponsors, and free market and business groups alike, including the U.S. Chamber of Commerce.

In the September 2016 press release that introduced the Senate bill, Rubio, along with co-sponsors Senator Jerry Moran (R-KS) and Senator Jeff Flake (R-AZ), and 38 Senate colleagues, included a joint statement formally appealing to former U.S. Treasury Secretary Jacob Lew to withdraw the proposed changes. The statement highlighted that “they directly contradict long-standing legal precedent, create new uncertainty for taxpayers, and put family-owned businesses at a disadvantage relative to other types of businesses.”

Both bills have since been referred to their respective committees within the House and Senate – where they currently remain.

Regulations In Limbo

What now? Where do things stand? At this time, there are no definite answers.   According to the U.S. Department of the Treasury, regulations will not go into effect until comments are carefully considered, and then 30 days after the regulations are finalized.

The good news is that with the new administration ushering in a more deregulatory environment, there is optimism that long-standing valuation practices for FLPs will remain in place. The bad news is that, if action isn’t passed soon to specifically block this measure, a possibly modified Section 2704 is in fact on schedule to begin implementation this year.

Next Steps

While lawmakers continue to knock heads and hash out details, the best approach for small business owners is to keep calm and speak with a professional valuation expert. The business valuation team at Rea & Associates is staying abreast of the situation, and is dedicated to keeping the business owners with whom we work informed of any late-breaking developments that could impact your gifting strategy. Email us to learn more, and plan to keep those seashells safe from the breaking waves of current political uncertainty.

By Cathy Levins, Client Service Specialist (Dublin office)

Check out these articles for even more great insights:

Building a Business is About Building Value

Considering Gifting Your Family Owned Business?

Grow The Value of Your Business

How To Communicate To Your Employees That You’re Selling Your Business

Employee Communication | Business Sales | Grow Your Value

When you decide to sell your business, don’t forget to facilitate open, transparent communication with your key employees. Read on to learn more.

Once you decide that it’s time to sell your business, you’ll be faced with many challenges. Perhaps of the toughest challenges you’ll face is deciding when and how to inform key employees about your decision.

Don’t worry; you’re not alone. Many owners are reluctant to tell their key employees that they are selling the business. Why? They fear that their top employees will run out the door searching for a new job if they hear that the business is for sale.

One client told me that his biggest concern about placing his business on the market was that his employees would find out. He and his wife were in their 80s and frail. The reality was that the employees were scared that he would not sell the business and it would be liquidated after his death.

Succession Planning Communication Tips

It’s critical that you inform your key employees of your intentions. They will likely sense that there is something is going on anyway; so rather than letting them fear the worse, consider a transparent communication style. After all, rumor and innuendo can make your employees leave faster than the truth. Four things you should do upfront:

  1. Articulate to your key employees why you are selling your business.
  2. Assure them that you will tell the buyer how important they are to the business.
  3. Properly incentivize them to stay. A popular incentive in these kinds of situations is a large retention bonus that is paid to the employee(s) after the deal is closed.
  4. Make sure that your key employees understand the importance of confidentiality, and that not all employees need to know that the business might be sold.

The reality is that the buyer of your business will need almost all your employees to keep the business running smoothly and to generate a profit. A few employees could lose their job if the buyer is larger and can manage some of the administration function from the home office. But once the dust settles, most employees are likely to be retained.

Once the paper work is signed and your business is sold, it is important that you rally your employees and get them excited about working for their new boss. Not only it is the right thing to do, most deals have earn-out clauses that pay a portion of the purchase price over time depending on how well the new owner does with the business. Having motivated and good employees in place will increase your chance of maximizing your earn-out on a deal.

If you’re embarking on the journey of selling your business and need some assistance in figuring out how to communicate to your employees, email Rea & Associates’ business valuation team.

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

Need more help to get you on the right track? Check out these articles for more helpful insight.

How Do You Choose A Business Exit Strategy?

How Do You Create A Succession Plan?

What’s Your Exit Plan?

 

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