White Papers TRANSFERRING WEALTH TO CHILDREN: A PRIMER FOR BUSINESS OWNERSBoth business owners and non-business owning parents want to transfer a monetary legacy to their children, if possible. However, business owners are different in the tools they can use to transfer wealth. VALUE DRIVERSHave you ever wondered why one business has buyers lining up to pay top dollar while another sits on the market for months or years? What do buyers look for in a prospective business acquisition? The characteristics buyers seek are called Value Drivers, and they must exist before the sale process even begins. USING SHORT-TERM KEY EMPLOYEE INCENTIVES TO INCREASE SALE PRICE VALUE DRIVERSOne of a business owner’s greatest challenges is to attract, motivate, and keep key employees. As owners approach the end of the marathon of exiting their businesses, often tired and distracted by everything they’ve done, they begin to assume that it is no longer worthwhile to keep and motivate key employees. However, keeping key employees is not only worthwhile but also necessary if the business is to be sold at the highest possible price. TRANSFERRING YOUR COMPANY TO KEY EMPLOYEESOwners wishing to sell their businesses to management—specifically, key employees—face two unpleasant facts: Their employees have no money (most likely) andthey cannot borrow any, at least not in sufficient quantities to cash out the owner. Thus, each transfer method described in this white paper uses either a long-term installment buyout of the owner or someone else’s money to complete the buyout. The last method discussed—the modified buyout—uses both an installment buyout and someone else’s money. LEAVING YOUR BUSINESS IS INEVITABLEOwners begin thinking about the Exit Planning Process when two streams of thought begin to converge. The first stream is a feeling that they want to do something besides go to work every day: either they would like to be someplace else—doing something else—or they simply no longer get the same kick out of doing what they are doing. C VS. S CORPORATION“I expect to exit my business down the road, but is there anything I need to do now?” Business owners often ask this question because they suspect that they should be doing something about exiting their businesses right now. These owners are on to something. BUSINESS CONTINUITY PLANNINGSuccessful owners are usually optimistic people, somewhat averse to dwelling on the more unpleasant aspects of business. Contemplating one’s demise certainly qualifies as an unpleasant aspect. Consequently, advisors tend to use a lot of softer phrasings when they talk about business continuity. They ask, "What happens if the owner passes on' or 'leaves the scene?'" They talk about the consequences of an owner’s death on the business in theoretical, third-party terms: "Should an owner die, . . ." Unfortunately, these oblique references gloss over the central fact that you, the owner, must take care of business now in case you (rather than some anonymous third party) die tomorrow. SUCCESSFUL TRANSFER OF THE FAMILY BUSINESSWhat could be easier than transferring your family business to its natural successor: your heirs apparent, your offspring? If some of your first guesses were peace in the Middle East, increasing honesty in politics, or convincing a teenager that he or she might be wrong about something, you have probably witnessed your share of family-business transfer disasters. TOP 10 DEAL PITFALLSThis white paper describes 10 deal pitfalls (in no particular order) that each have the capability to derail a deal, some more effectively than others. All of these pitfalls are fairly common, although some owners are prone to fall into more pits than others. As you examine this list, you will notice that all of the deal pitfalls are owner failures. It is rare that a financial or legal glitch is so significant that it can not be overcome by an owner’s transaction advisory team. Before and throughout your Exit Planning Process, refer to each of these pitfalls to assure that you don’t fall into them. Avoiding these pitfalls will allow a smooth exit on your terms. BUSINESS GROWTH BY ACQUISITIONThis white paper is dedicated to the owner seeking to exit his or her business in style. Acquiring other businesses is a tool that business owners use when growing their own businesses. The operative word is growing, since the purpose of growing your business through acquisition is to increase the value of your existing business. EMPLOYEE INCENTIVE PLANNINGAs business owners plan to exit their businesses, they must confront the challenge of incentivizing employees—specifically, management—to stay with the company after they have left. Having a strong, established, and committed management team to take the reins once an owner has exited is becoming more of a prerequisite than a luxury when selling or transferring the business to a third party. There are several reasons why a strong management team is essential to a successful business exit for owners. HEADWINDSIt doesn’t matter how well you start if you fail to finish. –Billy Sunday (1862–1935)Bicycle riders appreciate the importance of avoiding headwinds on a long ride, especially as they approach the end. A headwind causes a rider to either expend more effort or take more time to arrive at a destination. When a rider is already tired, neither option is appealing. A bike race and owning a business are remarkably similar when it comes to headwinds. As we anticipate the end of our business ownership journeys, the headwinds we face today require us to devote more effort or time to exit our businesses in style. SETTING GOALSAll business owners will exit their businesses, either by choice or as circumstances dictate (e.g., death, incapacity). Ideally, owners want to exit on their terms: leaving their businesses in the hands of successors they choose, on a date they pick, and for the money they need and want. UNDERSTANDING BUSINESS VALUEA successful Exit Plan results in the business owner exiting their business with the financial resources to meet their future needs. In Step Two of The BEI Seven Step Exit Planning Process™, Exit Planners work with business owners to quantify the value of their assets as well as the financial needs of the business owner following the sale of their business. Once each of these has been quantified, Exit Planners can determine whether there is a gap between them. If a gap exists, the Exit Planner can create a plan to close that gap. Let's start planning your financial future today Name Email Address Phone Feedback Thank you! Oops! The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG, LLC, to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.