Someday You Will Leave Your Business By Retirement, Death, Disability Or Drop Dead At Your Desk! Do You Have A Method Of Taking Your Business Equity With You In A Tax Efficient Way?

There are millions of small businesses in the United States, and many of them have something in common, and that is that they do not have a succession plan.  

I have heard figures like 80% or higher do not have a succession plan. Over 50% of the companies that have a succession plan, have either outdated plans, or incomplete plans.  

Why is this an over whelming problem with small business owners? Why would a business owner not want to make sure their “lifetime of effort” isn’t lost because of a lack of planning? 

SCENARIO: Someday all business owners will leave their business, either by retirement, death, disability, or just drop dead at their desks.  

 There will be a great loss in the value of the company because of this lack of planning, and consequently, the owner or the family will not receive the true potential value of the business. 

While I cannot explain why business owners do not do their planning, I can tell you some of the reasons the business owners and their family will not get the true value of their company when one of the three triggers occurs (retirement, death, and disability) They would be: 

Lack of planning -. They do not implement systems such as value drivers’ systems, next middle management, systematizing procedures, and others business building procedures. These are the elements that create the future value which a purchaser looks for when buying a business. 

The lack of planning also includes the failure to develop a middle management which could take over most of the tasks of the owner. By not creating a middle management, it leaves the owner as the indispensable person, the essential person in the firm. This is a dangerous position for the future of the company. It may be the greatest threat to the future value of the business.  Like anything else, when you lose the essential indispensable part of a machine, the machine will not work.  This is the same for the company when the owner is the “essential and indispensable” employee.  

Time- Most systems need time to develop and cultivate when building a business. Processes and systems need years to mature and create the potential value of the company. Consequently, when the owner gets near retirement with no more road left to plan, it is too late. Selling the business at the most potential value is not attainable. 

No liquidity: Many business owners put too much of their wealth in the business, such as inventory, machinery, receivables, and benefits, to name a few. They do not make the adjustment to using business cash flow to create wealth outside of the business, like pension plans, executive compensation plans, and other value building programs. Consequently, when capital is needed, it is hard to raise it, and is not readily available to the owner when needed the most.  

When business owners, decide they want to retire, and leave their business, they find themselves in a conflicted position. Because they did not take the time to plan, they have run out of time, and they will not yield the value they would have normally received if they had done planning over the years.  

The only options they may have:  

  • Sell at a reduced price 
  • Stay in the business until they find a buyer willing to buy at this price 
  • Continue in the business to fund their “retirement years” 

The bottom line is to start your planning early. My suggestion would be on the day you buy or start your business, start implementing a transition plan, as most of the transition planning requires an extended period in order to implement.  

Get your free Business Transition Commonly Asked Questions Report! Click here! 

Unknown Ways You “Shipwreck” Your Business!

This blog post is for the business owners who want to make sure their planning is solid and won’t shipwreck their businesses, estates, and legacy.  However, because of past experiences dealing with some professionals, their planning is incomplete, and they have put their financial planning on hold.  In summary, they are motivated to make sure they have good plans but are frustrated with the system of getting their planning efficiently completed.  

Throughout my career I have often wondered why business owners put things off that should not be delayed, as the price of doing nothing can be very costly. Ask any attorney how many unsigned wills they have in their file cabinets and watch them roll their eyes.

I have concluded owners end up with incomplete plans because of the way some professional advisors work with the business owners [1].   

  1. Advisors have their own agenda and put the business owner’s aside.
  2. Advisors don’t work together to share knowledge about the business owner to maximize the effectiveness of the planning. 
  3. They protect their territory and don’t share information.
  4. They make planning more complicated than it needs to be.
  5. They are not good listeners.  
  6. They tell the business owner, as opposed to asking, them what they want. 
  7. Brevity- Business owners really like to get things done.  Advisors in many cases are not efficient time managers when it comes to presenting ideas to business owners.  
  8. Many advisors come to meetings without preparation and wing it. 
  9. In some cases, business owners don’t trust their advisors. 
  10. Some advisors are not open to educating themselves in other planning areas, and neglect bringing in a specialist for the purpose of protecting their planning turf. Consequently, the business owner never gets exposed to the planning that needs to be done. 

 Keep in mind that most business owners have many opportunities to plan, however, they are frustrated from their past experiences and give up, never getting their plans completed.   

Communication with the business owner

Business owners are busy people.  To get their attention requires communication skills. 

Business owners are looking for someone they can trust to get these things done.   Someone they can rely on, and someone who will take the time to really understand what it is that they want and need to do in their planning.  

Your Ears

You have two ears and one mouthGet it?   By asking poignant questions and listening, you can learn much about the business owner. Let me show you by an example.  Recently I was referred to, and helped, a business owner named BillBill was frustrated that he hadn’t done particularly good planning

Our first conversation was about estate planningI asked him, “up to now, what has been the extent of your estate planning”He said he had a will but did it many years ago

I asked him if he knew who Doris Day was, and told him a story of when Doris Days’ husband died (he was her manager and took care of every detail in her life), she found herself in a huge dilemmaYou see, she never bothered to know anything about her business arrangementsShe avoided the business part of her lifeShe left it up to her husband 100%. He died in his 40’s of a heart attackBecause she did not have any knowledge of the personal estate and business estate arrangements, she ended up owing a fortune to the IRS in income and estate taxes. 

Bill, “I am sure the last thing you want to happen is to have your wife end up being like Doris Day.” He agreed. 

How much do you discuss estate planning with your spouse?” Followed by the question “Do you have an estate equalization plan for your children”?   Our discussion lasted over an hour, while I asked questions and took notes.

How many business owners do you know who died at the right time? In other words, they die when they start things (new loans for expansion), or in the middle of things like expanding key groups in the business, but they never seem to die after they finished something. 

They never die at a good time, and because of that, they normally have chaos in their estates, causing hardship during the estate settlement phase, costing much more to settle their estates

My question to Bill was, “Someday you will leave your business by death, disability, or retirement”.  What plans have you made to take your equity of your business with you in a favorable manner”

You see most business owners haven’t planned for this transition. When the time comes to retire, they can’t get their money out of the business, they don’t have any updated plans, and they have no time to adjust. Consequently, their “Lifetime of effort” is stuck in the business. If they tried to sell it, they wouldn’t get the true potential value from the business, because of a lack of planning Normally they want out and end up selling at a discount. They don’t have time to create a better value because they have run out of time. They haven’t done the necessary planning to build systems in the business to increase market value.

The business poured out the gravy!

By the time they want to retire, they have been used to a nice lifestyle, supported by the business.  This may include the social club, lunches, luxury vacations, entertainment, and in other areas of their life.

Because they can’t get the value they need out of the business, they are forced to stay in the business and hope it can continue being profitable, even though the business owner doesn’t have the heart to run hard any longer. In most cases, the business owner is trapped in their own creation[1]     

Building value in your business takes a long time to create the systems and strategies to maximize the fullest potential value.  Unless the business owner takes the time to discuss this with advisors, implement value drivers and systems needed; they will never realize the greatest value of their business.  

 As Bill and I talked, he realized the story of his business and future needed to change. 

My story is really about business owners that pour a “lifetime of effort” in their business but don’t put the necessary time and consideration in how to get their “lifetime of effort” out of the business when they or their family need it the most.   

The business poured out the gravy!

By the time they want to retire, they have been used to a nice lifestyle, supported by the business.  This may include the social club, lunches, luxury vacations, entertainment, and in other areas of their life.

Because they can’t get the value they need out of the business, they are forced to stay in the business and hope it can continue being profitable, even though the business owner doesn’t have the heart to run hard any longer. In most cases, the business owner is trapped in their own creation[1]     

Building value in your business takes a long time to create the systems and strategies to maximize the fullest potential value.  Unless the business owner takes the time to discuss this with advisors, implement value drivers and systems needed; they will never realize the greatest value of their business.  

 As Bill and I talked, he realized the story of his business and future needed to change. 

My story is really about business owners that pour a “lifetime of effort” in their business but don’t put the necessary time and consideration in how to get their “lifetime of effort” out of the business when they or their family need it the most.   

The Indispensable Owner

 The problem was that nobody else knew what Bill knew. Nobody would know what to do if something happened to Bill.  He was an indispensable owner and an essential employee.   He knew the clients, vendors, bankers, advisors, and the key people he needed to know to run his business.  

I told him that when a motor loses its “indispensable and essential part”, the motor will not run any longer.  I told him when he dies, retires, becomes ill, and leaves his business, the “indispensable part” will destroy his “lifetime of effort”.  

That resonated with Bill.  We are now working on building a middle management and putting together an estate plan and a succession plan.  

MESSAGE TO PROFESSIONALS:  

When dealing with business owners keep in mind that they are focused.  They don’t like complexity, and they want to completely understand everything before they make any decisions on issues.  Listen to them and ask them questions.

To Business Owners

Business owners make a big mistake by not putting in the effort and being aware of the other parts of their business.  They don’t need to learn it, but they need to be aware of it.  By not being aware of certain parts of business planning, they end up in a financial chaos situation. 

The solution is to have discussions with your advisors regularly about the different areas of your business that you are not involved in.  Such as; succession planning, estate planning, keeping your key group, executive compensation plans.  These are areas that need to be reviewed and considered.   Without them you will “shipwreck” your family legacy or create missed opportunities. 

In my practice I have set up a bi-monthly sessions to cover issues and topics for our business owners.  This keeps them up to date and gives them a resource to address other issues.  


[1] If he sold his business, paid all the taxes and fees (which would reduce his net value by about 40-50%), and then took that value and invested it at 3-4% (to avoid taking risks), his return would probably be much less than the perks and income he was taking from the business.  And that is what provided his lifestyle.  


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[1] Professional financial advisors (anyone who is giving financial advice to business owners)

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Awareness to succeed!

This is the video and the narrative to post

This video is a 19-minute quick course which I put together in order .to share with you the biggest mistakes business owners make.

I call this the “Awareness to Succeed,” course. 

Owners spend most of their time on their product and services, and employee relations. This takes up much of their time. 

However, because of these time-consuming tasks, they are unaware of the other areas of business that should be understood and focused on by them, or at least have an awareness of. 

By not having some type of awareness in these areas, they run the risk of being side swiped by some fiscal impact that may have a major effect on their finances, both business wise and personally. 

This quick course will make you aware of some of the major areas you need to understand better. 

As an owner, you may not have the time to learn all that you need to know about these areas. You will learn that they are especially important and assign a professional consultant to keep you informed of your status and future developments in these areas. 

There are many changes coming out of Washington weekly that affect your business. You need a system to stay up on many of the changes. This course is designed to help you understand critical information. Take the 19 minutes to learn more about, Growth, Protection, Equity, and Transition in your business.

Once you complete this course, request a FREE download of my book “Unlocking Your Business DNA,” and subscribe to “Building and Protecting Your Business Worth Podcast.”  These are two great areas for learning. 

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The Key To Creating Value in Your The Key To Creating Value in Your Company

In Chapter 4 of my book, “Unlocking Your Business DNA”, I discuss your key group. I discussed the up side  and the downside of having a key group. 

First, the upside is nothing but good stuff.  Having a key person or group is one of the value drivers which add great value to your business, add profits, frees up your time, and allows you to enjoy your business life more.  Also, they can become the future purchaser of your company. 

The key person or group only becomes bad when the owners don’t pay attention.  They don’t protect themselves from the possibility of being held hostage in the future.  The case study is worth reading as it happens all the time to unsuspecting owners.  

In the case discussed, I pointed out the problems, but also gave some possible solutions where everyone is happy.  

This is a key chapter to read to make sure you don’t make the mistake our client did.  

   If you wish to discuss creating a “Destiny Plan” with me, or discuss general questions about your business’ Key Business and Financial Elements, CLICK  BELOW to arrange a mutually convenient 15 minute discussion.       LET’S DISCUSS “DESTINY PLANNING”  ALSO, if you would like to email me your questions, please do;  tperrone@necgginc.comsubject:  QUESTION 

Reasons They Do Not Have A Transition Plan That Will Be Efficient – Part 2

Over the years, my experience with many owners I have found a major conflict with owners is the working in their business vs. working on their business. It is extremely hard for many business owners to make changes and spend the necessary time. I have a book called “Unlocking Your Business DNA”, which discusses the personal tragedy of not having the proper planning.  

FOR A FREE EBOOK; REQUEST UNLOCKING YOUR BUSINESS DNA 

I have heard the stories from “I will live a long life”- “I need to work and won’t retire” “No one can do this like I can”   

Four possibilities of leaving your business:  

  1. Death (that includes dropping dead at your desk) 
  1. Disability 
  1. Retirement 
  1. Cannot do it any longer 

By not planning, the owner may find themselves receiving much less for the business, walking away without any value, or just die working at their “bench.” 

Because of this one reason, we developed the two hour a month planning process, called:  THE ONE PAGE PLANNING PROGRAM.   

The Owner AND Their Issues:  What is important for the owner is to have a personal retirement and estate plan to define their future needs. Do they want to stay active in the business even when retired? Will they have enough money for retirement? Will they have estate tax exposure. Do they have the proper estate documents? Do they have someone to sell the business too? How much will they have to sell their business for to net the amount of assets needed to provide their financial security? 

Owner Issues 

  • Financial Security 
  • Wealth Preservation and transferring the business with as little taxes as possible.  

The Family: What is the status of the family relationships in the business? Do any of the family members depend on the business for income?  Do they own stock? Are they in agreement with the proposed succession?  Are their careers involved with the business? 

Key Issues for family  

  • Compensation among family members in the business?  
  • Inheritance among family members?  
  • Management of family business, who is involved?  

The Company. 

  • What are the assets in the business? What is the value of the assets? What is the value of the business?  
  • Has the company been appraised in the last few years? 
  • Is the buy and sell agreement in force-signed and dated?  
  • Does there need to be more formality in the governance of the structure? 
  • Has there been a systematic attempt to enhance business value drivers over the years? 
  • What is the structure to get earnings out on a tax advantage structure?  
  • Who will be the leader of the company, and will there be a change in ownership? 

The Succession Plan 

  • Business Situation and questions when thinking about succession. 
  • How are you getting earnings out of the company on a tax advantaged structure?  
  • Have you considered the leadership and owner issues to be addressed?  
  • Each entity structure has advantages and disadvantages, and each should be looked at carefully when considering your future status as you transition? 

FOR A FREE EBOOK; REQUEST UNLOCKING YOUR BUSINESS DNA 

Selling Your Business To The Younger Generation!

I am old enough to remember the many small businesses in my hometown. There were all types of businesses such as, meat markets, hardware stores, small groceries stores and many specialty stores. Large shopping centers and malls were just starting to appear, as they would be the future home of many of the smaller stores along with the big chain stores.    

FREE OFFER:  Receive my free E-book;  “Unlocking Your Business DNA” to learn the strategies of growing, protecting, and transitioning your business for greater value” CLICK HERE 

It was the fifties and small business was booming. There were many reasons for the business boom, but mainly it was the population of the baby boomers which gave way for opportunities to buy or start a business.   

Now over 60 years later, things are changing. The boomers that started the businesses are now older and would like to retire and sell their businesses.   

Baby boomers own 2.34 million small businesses and employ more than 25 million people (about the population of Texas)i. This represents about 100 million citizens when you consider family members.   

Incomplete Plans 

A recent surveyii shows that 58% of small business owners have not only failed to complete a succession plan, but many haven’t even considered a transition plan. The significance of this figure is the potential catastrophic effect on our economy as the boomers burn out, die, or become too ill to work. Other studies tell us that only 30% of business owners have a succession plan, and 50% of them are incomplete plans.  

The impact of this lack of planning not only affects the consumer, but also employees, family members, partners, independent contractors, part time workers, down the line suppliers, an endless road of dependence on each business.   

Even the younger generation business owners are affected by the closing of these businesses, as the younger business owners have a type of dependence on the success of the boomer’s generation of businesses.   They rely on these established businesses as suppliers, mentors, etc. 

Receive my free E-book;  “Unlocking Your Business DNA” to learn the strategies of growing, protecting, and transitioning your business for greater value” CLICK HERE 

Younger Generations 

Interestingly, many younger generations are not interested in running the family business. They have seen the sacrifices their parents and other family members have made over the years; they don’t want to spend all the time necessary to run the business.   

This generation, beginning with the babies of 1965 and continuing through 1984, is a big problem for Boomers, who are preparing to sell their businesses. The issues are three-fold: numbers, values and choices. 

A major reason for the potential problems for baby boomers is in the pure number of them. From 1945-1964 there were many baby boomers born during that period which stemmed the growth of the economy. However, the next generation is about 23% less in population. This means there are less people in the younger generation to purchase businesses.   

In the next 4-6 years, when the last of the boomers hit 65 years old, almost 5 million fewer people (23%) will be turning 45, and entering their prime business buying years. This shortage of buyers will create the worst imbalance between small business sellers and buyers in history, and it will continue for the next 20 years.iii 

Values 

Boomers have a vastly different work ethic than the Generation X’s. Not that they are lazy, but their values of working, when and why, are very different. Because of these values there are many Generation Xer’s who don’t wish to have the same work schedule their parents had.   

Generation Xers want to define the “work-life balance”.  Their observation of life watching their parents work all the time, didn’t really make sense to them. Consequently, they want to create more of a balance in life.    

Generation X’s, by and large, doesn’t equate material comfort directly with work. Their “balance” is oriented towards separating work and life. Unlike most Boomers, who live to work, the X generation only works to live. Work isn’t their identity, it’s merely the thing that allows them to pay for what they really want and their living standard. 

Many Baby Boomers’ attitude was, “live to work”. Working a 50–60-hour week was part of their business. Based on data, the Xer’s don’t agree with that lifestyle and are not interested in having a business where the cost is many hours of work.  

Planning for the Boomers and Their Business  

Because there is a shrinking number of future purchasers, small business seller’s must take all the necessary steps to prepare their company for an ultimate sale. In most cases they will need help in preparing for the sale of their business.  

There are professionals who can recommend to you how to prepare for the sale or your business, and to help you create the key strategies to implement for a greater potential value.  

Past Problems  

Many of the strategies needed to create value in business need time. You normally can’t wake up one day and decide to sell your business next week and expect to get the highest potential value.  

However, with the right coaching, you can start working on the strategies that can increase the potential value of your company. Even if you are years away from thinking about selling your business, business owners should engage with professionals to start the process of implementing the right value drivers early, with the end game being to increase the potential greatest value of their company.  

Point to be made  

By kicking the “transition of your business can”, down the road, owners are putting themselves in a terrible position. Not only are they not prepared to sell, they don’t have the systems in place that create the potential highest value, but also there may be a limited number of buyers in  the younger generations.  

If you are a business owner interested in discussing the future of your business, we would be happy to have that discussion with you.  

To aid you with the conversation, we have created an assessment tool that it easy to use. It takes about two minutes to complete, and it will give you an idea of your strong and weak points in your business planning. It’s a free tool called the “scorecard”.  Once completed we will send you a free analysis report of your strong and weak points of your business planning. We will also offer a free phone conference to discuss the results with you. Once you submit your scorecard, we will send you an assessment report in approximately 72 hours (about 3 days).  

Receive my free E-book;  “Unlocking Your Business DNA” to learn the strategies of growing, protecting, and transitioning your business for greater value” CLICK HERE 

Common techniques and situations where life insurance is required!

When you apply for life insurance with a trust, how is it set up? What are some of the ramifications? 

Basically, a life insurance policy is purchased by the trust and is owned by the trust.  The Grantor pays the premium in the form of gifts to the trust.  By doing so, the life insurance is not part of the estate, the benefits are tax-free, and if done correctly, premiums are considered present interest gifts in most cases.  The combination of the trust (Irrevocable Insurance Trust), and the Life Insurance maximizes and leverages the amount of property which can pass to the estate!   

  • The Trust needs a Tax ID (EIN) from the IRS since this is a tax paying entity 
  • A non-interest-bearing checking account in the name of the trust is needed to deposit cash into to cover the premium payment.  
  • The Grantor makes gifts to beneficiaries of the trusts. Gifts are deposited into the checking account. Gifts are normally within the annual exemption limit. 

Life Insurance and Business Succession Planning 

  • Equalization when leaving a business to family members when some of the members will receive the business while others will not.  Life Insurance can be the equalizer for the other children not receiving business interests.  
  • For businesses that are heavy in real estate, the life insurance can guarantee liquidity to cover maintenance expenses and lost cash flow. 
  • Life Insurance is a component of most buy and sell agreements to ensure the surviving partner has liquidity to buy out the interest of the deceased family member. 

To receive our FREE Estate Planning Guide for Business owners, BUSINESS OWNERS ESSENTIAL R-6:  CLICK HERE FOR THE DOWNLOADON the drop-down menu pick R-6 Business Owners Essentials. 

Types of Insurance:  Whole life, 2nd to die. What are the benefits of each?  

  • Second-to-die/survivorship life insurance can be in the form of a whole life or Universal life insurance policy.   It covers two lives and is paid at the survivor’s death.  It is normally when the capital requirements are needed at the death of the survivor.  Based on the mortality of two lives, it provides a discount for the insurance.  However, after the 1st insured dies, the premiums are normally needed, so a consideration would be the cash flow after a death of either one of the insureds.  However, if the capital requirement will be at the 2nd death, this type of policy is less expensive than buying two policies.   
  • Whole Life Insurance and Universal life are designed to stay in force for the insured’s lifetime. Whole life has guarantees, while Univeral life is albeit more flexible. It has the potential to cost more to keep in force for the whole of life.  However, universal life does offer guaranteed death benefit plans. Whole life and Universal Life can be used when the capital is needed for the lifetime of the insured.  
  • Term insurance is designed to last for a specific period before it expires.  Although term insurance is the least expensive initially, with outlay, it can become the most expensive over time.   However, it is a great plan to own when you have defined the capital exposure needed for a specific period and no longer. An example would be a bank loan for a brief period, a potential exposure or need not lasting for more than 20 years.   

Is life insurance death benefit tax free  Most of the time if arranged correctly.  However, there are a few exceptions when life insurance is not taxfree.   

  • Paid directly to the designated beneficiary (trust or individual) it will be paid tax free.   
  • The unholy triangle:  owner –dad; Dad gifts the policy ownership to daughter.  Daughter names her daughter as beneficiary.  At dad’s death there is a gift from Daughter (owner) to her daughter as the named beneficiary.  
  • Transfer for value:  This is when a policy is sold to another person as owner and paid to a non-exempt class, the policy will be taxable on the proceeds in excess of what the policy was sold for.  
  • Owner A, sells, his policy to his brother-in-law. At A’s death, the proceeds will be taxable in excess of what the brother-in-law paid towards the policy.  
  • However, if the brother-in-law was a Corportation (office of), a partner, a partnership, there would be no income taxes.  
  • Or anyone whose basis is determined by reference to the original transferor’s basis.  
  • The insured (or insured’s spouse or ex-spouse if incident to a divorce under Sec 1041) 

Avoiding the three-year look-back period when existing insurance is transferred to a trust.  

  • If the policy is already owned the insured can gift the policy to the trust, making a lifetime gift to the trust, the trust can then buy the policy for the interpolated reserve value of the policy  
  • Set up the trust before the purchase of the life insurance. Have the trust buy the policy, the trust would be the original owner and beneficiary.  

Download Our  FREE Business and Estate Planning Guide for Business OwnersBUSINESS OWNERS ESSENTIAL R-6:   

CLICK HERE FOR THE DOWNLOADON the drop-down menu pick R-6 Business Owners Essentials. 

What changes can be made to an irrevocable trust when the estate planning has changed?  

  • Decanting the trust varies from state to state. Decanting techniques can pass the assets into a new trust and take advantage of enhancements that may have appeared in the trust code since the original trust was created.  
  • Establishing a new trust for the life insurance:  The funding must be valued at the value of the old trust (namely the interpolated reserve value). It requires an exchange of assets. The trustees would also sign a contract of sale when the life insurance is transferred.  Certain procedures need to be in order.  

These are a few of the areas professional planners should be aware of when working on the estate of their clients.  These are some of the more complicated planning techniques, which come up often and are critical to making sure advisors are aware of the potential tax traps.   

I have found it best to work with the “team” of the client’s advisors so there is less of a chance to make mistakes when planning the estate of the business owner.   

To receive our FREE Estate Planning Guide for Business owners, BUSINESS OWNERS ESSENTIAL R-6:  CLICK HERE FOR THE DOWNLOADON the drop-down menu pick R-6 Business Owners Essentials. 

Business Owners Essential Planning Tools! Part 2!

Good planning can often begin with owners transferring ownership interest to family members, without giving up control of the business. This type of planning sets the stage for the future passing of the baton and can be highly effective.

The long-term plan of business transition can also focus on who can run the business operations once the senior guard leaves the business. Just because a family member has worked in the business, it does not mean they can run the business effectively.

Business Transition And Succession Planning requires many years to develop the right plan. It starts with finding the right employees to train for the job, and the right people to run the business (this includes family succession situations).  

I have found that “Passive Ownership” can be a particularly good possibility for many business owners. They stay in control and slowly give away the duties over time while running the business, but at the same time slowly disengaging from the business. It gives them time to help prepare the junior successor for the job.

The procedure for “Transition Planning” is critical for a long-lasting understanding amongst the family members, both in and out of the business. Without clear communication to the family members, conflict and bad feelings may occur. 

Business Succession Planning  (Click to receive full report and guide; R-1)

  • What would happen to the business if one of the partners died? 
    • Who will buy your interest in the business?
    • Will the company, shareholders, or the heirs keep the right to own the shares. Are the party’s mandated to buy your shares? 
    • Where will the capital to buy the shares come from? 
    • Do you want the deceased shareholders/beneficiaries to have the choice to run the business? 
    • What is the funding mechanism to buy the business? 
    • How is the life insurance structured to help fund the purchase price?
    • Is the same true for a disability? If so, what is the definition of a disability to trigger the sale. Is the disability funded?
    • What are the rules if a partner wants to sell to a 3rd party? 
    • Is there a “put” right; to have the company buy the shares of a disputed share holder? 
    • What are doing concerning incentives to key employees?
    • How are you supporting retirement through the company? 
    • What are you providing in executive compensation to the key people active owners, and officers of the business?

There are many more questions that need to be answered. The elements of your business succession plan will normally be in your business succession agreement and incorporated in the operating or stockholder’s agreement.

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Operating Agreement:  

An agreement which regulates the company and manages the relationships between the members of the company.

Buy-Sell Agreement

An agreement between the business owners to buy and sell interest in the business at a specified price upon a “triggering event”, such as death, disability, divorce, voluntary withdrawal, non-voluntary withdrawal, bankruptcy, and retirement.

This document is important and serves to obtain a fair price for the stockholder and a path for a smooth transition for the parties involved.

Type of Buy and Sell agreements:

  • Cross purchase: This is between stockholders to buy departing stockholder’s shares
  • Redemption agreement:  The entity (business) buys the shares
  • Hybrid/ a combination of above: A “wait and see buy and sell[1]

Provisions in the buy and sell agreement

The sale price of the departing owners’ interest and how it will be paid

  • Installment
  • Sinking fund
  • Cash 
  • Life insurance[2]

Other Methods To Transfer Property:

Although the buy and sell agreement is an effective method to transfer property, other methods, such as ESOPs, compensation plans, and pension plans have a place in funding.

There are other areas and issues in your business planning that need to be addressed at some point and redefined over time.

The valuation of your company should be done by a qualified and certified appraiser. Business owners seem to think they know the value of their business, however, in more cases than not, they are incorrect.

Having A Team Of Financial Experts Will Help You Plan Your Business And Your Estate.

My suggestion is to create a team of advisors who can meet periodically and report on the status of the business to the “team”.

I have found this to be a valuable tool as everyone gets on the same page in the planning process and understands what the owner wishes to accomplish. 

Over the years I have created the team consisting of the CPA, attorney, banker, investment, insurance and other professionals who come together and review what the status of the planning is up to that point for the business owner. Normally, the team consists of the professionals who have a relationship with the business owner and are currently doing planning for them. Unfortunately, each professional has their own agenda, and rarely knows what the other professional are doing for the business owner.,

In most cases this is the first time the advisors have communicated with each other. I have always thought this was in the best interest of the business owner and was prudent to use these resources. Putting the business owners’ advisors in the same room once a year could be the best planning strategy, they can employ. 

The Bottom-Line Thought

The solutions and strategies are in abundance to solve the issues. The problem is defining what the owner wants in their plan.

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[1] A combination of the redemption and the cross purchase. Usually, the stockholder or trust owns the life insurance on the partners.  Normally driven by tax issues and positioning.   

[2] Life insurance is normally the least expensive way of funding the death benefit when compared to alternatives. The life insurance can also play a role in providing funds to help stockholders purchase interest in the company. 

Ode To Mr. Business Owner!

Dear Business Owner,  

We’ve never met, but I know some things about you.   

I know because I have met and served many business owners like you in my 50 years.   

Here’s what I know about you:  

You have a successful business, but it comes with a significant investment of your time, time that you want to start taking back for outside interests.   

You pay the IRS a large amount every year.  

You wear all the hats; therefore, you are the value of your business.  You know that it would be worthless without you.   

You desire time to mentor someone, or better yet, a group of people to run your business so you don’t burnout. Your problem is, there is no time to do this because you are so busy.   

You feel trapped within the four walls of your business.  

You dread having the quarterly conversations with all of the people that you pay to do the work for you.  Accountants, Bookkeeper, Financial Advisors, Attorneys etc. In fact, these “professionals” probably have never met.   

If you died tomorrow no one would have a clue what to do.   

You have no escape plan.  

You think there is no other way.   

Hi, I am Tom Perrone and I want to virtually shake your hand, give you a pat on the back, and tell you “I Get It”.   

You, like many business owners that I have worked with over the last 50 years think that there is no other way than the same old song and dance that has always been done.   

No one listens to you, the one that makes all the plates spin and it upsets you.   

You are up at night pacing the floors wondering how this machine that you created has overtaken your life.   

That wasn’t your goal when you started, in fact, you have no idea how you got here.  

You need an escape plan.   

Like I said, “I get it”. 

I’ve put together a team to help business owners like you enjoy more time doing what you love outside the business while the machine runs itself.   

I’m passionate about teaching intelligent business owners like you how to get all you can out of your business before it takes all it can from you.   

You run your business…Your business shouldn’t run you.  

As a way of saying thanks for taking the time to read this,    

I’ve included a copy of my book:  

Unlocking Your Business’ DNA”- Cracking the code to a better business, bigger profits and more time on the beach!  

Click reply and let’s learn more about each other.  

Your escape plan awaits…  

Talk soon,   

Tom.   

Finally, A Way To Work On Your Business Without Giving Up Working In Your Business!

Give Me Two Hours A Month, And Your Problems Are Solved!

In my book, “Unlocking Your Business DNA”[1], I discuss a system called, “The One Page Blueprint Solution”, or “OPBS”.    This system is designed to help business owners solve specific problems in their business, effectively, efficiently and without giving up time to work in their business.  It is a way to finally have business owners “work on their businesses” and solve business issues important for the success of their business.    

The OPBS does many things, among them:

  1. Prepares the owner for the planning session in advance.
  2. Organizes what needs to be discussed.
  3. The business owners control the agenda discussed. 
  4. Covers the elements which need focus. 
  5. Allows owners to work at their own pace.
  6. Creates brevity in your planning, leaving more time to work in your business. 
  7. Planning time is 1-3 hours a month which 60% of the time involves a self-study review. 
  8. Issues get resolved very quickly.  
  9. Many other benefits…

I use 15-20 key areas that I feel most business owners need to address if they wish to maximize their business growth and create the highest potential value for their business.  Here are two of 15 as examples of what is needed in the planning. 

This is an example of two of the many areas of planning.  I work with about 15-20 areas.  Not every company needs to fix all the areas, however, over time without reviews, areas of planning which were up to date at one time, can lose their effectiveness when not fine-tuned.

The Sale of Your Business to The Outside: 

  1. This could be in two months or thirty years; it is different for each business. In this planning session there are several areas the business owner needs to focus on. 
    1. Systemized business
    1. Put business in growth mode
    1. Delegate to middle management and upper management
    1. Lock the key group into the company
    1. Attract several potential buyers 
    1. Receive maximum cash for the sale
    1. Prepare to leave when you want to leave (maybe stay only if you want to stay)
    1. Plan to do something the rest of your life
    1. If you start early, you can control the whole process
  2. Tools needed: 
    1. Value Drivers
    1. Systemizing the business
    1. Golden Handcuffs for management and stay documents, (disclosure, competition, non-compete)
    1. Controlled Auction for the sale
  • #Sale of your Business from Inside the business or to your family! 
  • Make sure the new owners can run the company without you 
  • Lock in non-owners’ managers
  • Delegate your responsibilities to management
  • Due diligence to make sure you don’t end up with the business after the sale
  • Put business in growth mode
  • Guarantee income stream from the sale
  • Minimize taxes to you
  • Minimize taxes to the seller
  • Have a lifetime plan
  • Teach employee to be employers

Tools needed:

  1. Market Value Drivers 
  2. Systemizing the business
  3. Golden handcuffs for management team 
  4. Well Designed transition Plan

With the help of “zoom”, phone conferences, and the cloud, we can discuss an array of topics without parties leaving their offices.  Our designed meetings are previewed before our discussions so questions can be prepared about the subject matter.  (This creates a great give and take of the subject) 

It is my opinion that business owners should review all the key areas of their business periodically to make sure they stay “a fine-tuned machine” and maximize their future potential value of growth.  

If you wish to participate in a one-minute business assessment, to see how ‘fined tuned” you are; 

 LESS THAN A MINUTE SURVEY

Trust me: (it takes one- minute to do).  I will send you a FREE report card and summary of where you may want to focus for your business efficiency.  ALSO, along with the completion of the survey, I will send you a copy of my newly published book: Unlocking Your Business DNA”.


[1] You can purchase this book at Amazon-kindle and paperback. Profits go to “Wounded Warrior Foundation”