Category: Working On Your Business

LOOKING WITHIN FOR YOUR POTENTIAL SALE OF YOUR BUSINESS!

by YOUR BUSINESS WORTH, posted in Company Wealth, Selling Your Business, Working On Your Business

A major challenge for a small business owner is selling their business for the right price and to the right purchaser.  However, in most cases we find that many business owners don’t spend the needed time to do this planning.  Consequently, they jeopardize the potential sale price.

Many small businesses will not be purchased from an outside purchaser, (about 5%), but the sale could come from either family members or inside employees of the business.

A 2003 study suggested that owners felt nine out of ten family owned business leaders thought their business will continue to be run by the same family or families in the next five years. [1]

You may have considered keeping the ownership of the business in the family and may have already gifted stock or sold stock to your children.  If this is the case, your planning should be more directed to other parts of the financial life, and possibly the role as a passive owner in the business.

Continue reading “LOOKING WITHIN FOR YOUR POTENTIAL SALE OF YOUR BUSINESS!” →

The Four Life Changes Of A Business Owner!

by YOUR BUSINESS WORTH, posted in Buy and Sell Agreements, Company Wealth, Income from your business, Passive Ownership, Selling Your Business, Working On Your Business

What is it that you think about the most as a business owner?   Chances are they are one of four things:

  • What if I don’t want to stay in business and I want to drop out?
  • What if I get sick, disabled, or die?
  • What if my key person (s) decides to leave me?
  •  What if I can’t increase and improve my cash flow (life blood of the business), or the economy crashes?  

Besides running the day to day of the business, and the stress that goes with this, the four items listed above are probably the biggest stressful thoughts business owners have.   Let’s break them down.

Why the typical business owner thinks about these issues, is because they know they put a lot of sweat, tears, money, time  into their business.  They have most of their wealth in the business,  and know that they have no way of extracting that wealth when these events happen!

What if I don’t’ want to do this any longer and just want to drop out? 

Think about it!  The business owner has most of their wealth and time tied into this business.  In most cases it is very difficult to just stop doing what they are doing, lock the front door and leave the responsibility, wealth and reputation behind.  They still need their wealth in the business to maintain their life style.

Business owners are human beings and sometimes they just get tired of doing what they are doing, they burn out.   Sometimes they feel they are trapped and living a life of desperation.  They are making a nice living, and seeking to make a great life  for themselves and their families.  Chances are when they started the business they were only looking for a place to go, a position, a paycheck, and with a little luck a dream. The stress of running a business can take its toll on the businessman and the family.

They need the wealth they have invested, but don’t have a way of selling the business at a reasonable price.   Can the business be sold to an outsider?  Or, is there someone inside the company who will buy the business?  If so, do they have the money?  Is there someone who would run the business while the owner keeps their hands in the business?  Or, do they liquidate it?   Many times, even if a business owner sells their business, they find that after the taxes and expenses there’s not enough capital at a guaranteed rate of return to produce the income needed to keep the business owner and their family in the lifestyle they been used to. Because of this factor, more stress is added to the business owner and their future income. Continue reading “The Four Life Changes Of A Business Owner!” →

The Small Issues Which Business Owners Need To Know About!

by YOUR BUSINESS WORTH, posted in Company Wealth, Income from your business, Selling Your Business, Working On Your Business

The Small Issues Which Business Owners Need To Know About!

When working with business owners, it is important to communicate many of the overlooked issues which may blindside them and cause disaster in their financial future.

Small issues turn into major problems bringing with them costly consequences. Many of them are obvious, and can be game changers in your future.

Whether you are an advisor or a business owner, some of the ideas I put forth will help you communicate these overlooked issues.

Estate Planning

I am sure if you asked 10 people to describe what estate planning is in one sentence, you would get 10 different answers.

At one time most advisors and business owners  would suggest that estate planning is about reducing taxes.  However, I would disagree that estate planning is just  about paying death taxes and mitigating estate costs.

To me, estate planning consists of three phases, creation, preservation, and distribution.  Each of the phases is distinct in and of themselves.

Creation is the concept of money, and accumulating.  Implementing strategies, which allow estate owners to create wealth, and avoid losing wealth by making financial mistakes.

Preservation is about protecting what you have from, inflation, lawsuits, expenses, and taxes. 

Distribution is the orderly distribution to your heirs.  It also is   a phase where the estate owner can distribute wealth to certain beneficiaries, at the least cost possible.

DORIS DAY:  THE EXAMPLE

Doris Day’s husband died in his 60’s.  He had taken care of all the financial areas of their life.    After his death, Doris Day did not know what she had, or what she owed.  The net result was she ended up owing a fortune to the IRS, in income and estate taxes.

Business owners not only have needs as business owners, but also have needs as individuals. Consequently, it’s not only the business planning that needs attention, but also a coordination of their personal situation.     In many situations, the owner’s planning is more complex because of the business ownership.

Continue reading “The Small Issues Which Business Owners Need To Know About!” →

The Complexities and Issues of Business

by YOUR BUSINESS WORTH, posted in Company Wealth, Selling Your Business, Strategies of growing business, Working On Your Business

A chief concern for many business owners is how to arrange the orderly transfer of business to the next generation of family members or key employees. By far the biggest concern is how to keep the family business and the family. It is estimated that more than 70% of family-owned businesses do not survive the transition from the founder to the second-generation.

There are essentially three levels of the business succession plan.

Management; this is day-to-day management of the business which can be left to one person, one child or a group  of children. Also, this group might not be active in the business. This group could also include key employees rather than family members

Ownership; most owners would prefer to leave their businesses to the children that are active in the business. However, not all the children might be involved. Owners would still like to treat their children fairly, but not necessarily equally. Consequently, if the business interest is not left to a group of children, some other value would be left to the non-business children. A subset of this topic is whether the business owner will need a continued economic benefit from the business after the transfer. Also, will the business owner continue to control the business after the transfer is complete.

Transfer taxes; estate taxes can erode business value.   The question would be is there enough liquidity to take on the debt and keep the business going? This is truly a challenge to high-value business especially with a estate tax being a moving target as to the exemptions and percentage of taxations.

 Level I management

It might take many years for an owner to train the successor management team so that the business can run automatically. This allows the owner to walk away from the day by day operations. To do this the owner must give up control and tasks in which they ordinarily controlled. This is easier said than done. Whether the owner creates a management team with the next generation, or a key group of employees, the owner must learn to delegate important tasks.

Continue reading “The Complexities and Issues of Business” →

Transferring A Business To Insiders

by YOUR BUSINESS WORTH, posted in Buy and Sell Agreements, Selling Your Business, Working On Your Business

Selling your business is an important financial transaction that requires a well developed exit strategy. Many owners view their business as much more than an asset. They’ve poured their hearts and souls into it. Maintaining the established business culture motivates them to sell to insiders. In fact, 95% of all sale transactions involve insiders, who may include co-owners, family members, managers and key employees. The insider group that is buying the business is called a key employee group (KEG).

There are four ways to transfer a business to insiders: Continue reading “Transferring A Business To Insiders” →

What If I Want to Recruit a Key Employee?

by YOUR BUSINESS WORTH, posted in Company Wealth, Working On Your Business

The objectives of recruiting a key executive from the marketplace are to make your business more profitable, to grow the company and / or to bring talent to your business that does not currently exist. You must design incentive plans that achieve those goals.

You will always be a slave to your business unless you have capable management in place to run the business when you are not there. If you someday hope to sell your business to an outside buyer, you will need to have solid managers in place to get serious consideration from an outside buyer. As is the case with most companies, the management team could someday become your buyers. If you want to transfer your business to your children, you will need key employees in place to assist them with the transition.

In order to attract the right person to your company, you must offer them an incentive plan that rewards them for efforts that increase the value / profitability of your business.

You should pay a key employee for projects that they initiate. This could be an additional six percent or more of their base pay. When this key employee has a positive effect on the rest of the management team, pay them a bonus based upon that influence. This could be 10 – 20 percent of their base.

When hiring for key management, we find that most compensation packages combine base and incentives. Determine the incentive on the company’s growth once that employee joins you. Decide how much you are willing to pay the right employee and then back into that figure.

Continue reading “What If I Want to Recruit a Key Employee?” →

What If I Want to Take Care of Myself?

by YOUR BUSINESS WORTH, posted in Company Wealth, Executive Benefits, Tax Free Income, Working On Your Business

Business owners have experienced a well-publicized meltdown in traditional financing. Now they want to know how they can prevent themselves from being vulnerable again!

Become Your Own Bank

What if you set a goal today to accumulate money on your own? Shore up reserves for use in emergencies in your business, or for business opportunities, investments and personal retirement. You take care of your employees, your vendors and your customers. What if you think about taking care of yourself? Traditional savings vehicles are not as attractive as they were in the past. Many companies have eliminated pension plans. Those companies that haven’t are finding that, in many cases, the owner can’t put a substantial amount away for himself. Today’s business owner wants to accumulate money for the future’s “what ifs” without depending on outside financing sources.

Set up a SIP

The solution is a supplemental income plan, or SIP. If properly designed, a SIP accomplishes several things. The growth is tax-deferred. If accessed correctly, the gain is tax-free. There are no contribution rules and no required distributions. Moreover, there is a pre-retirement survivor benefit paid to the family in case of the death of the business owner, also tax-free. With the cash flow rigors of owning your business, putting money aside gets more difficult every day. Traditional methods no longer work or are no longer attractive. Safety is a greater concern now than in the past. Business owners want to control their own financial destinies without depending on credit lines, business loans and outside financing. What if, going forward, you finance your own business purchases? Every cent you pay in financing costs is lost forever. Eliminate these costs in the future and use your SIP for purchases, investments, opportunities and emergencies. The savings on financing goes back into your pocket. This is perhaps the best recession-era lesson for business owners to absorb today and to never forget in the future. Do not rely heavily on outside funding in the form of loans, vendor financing or even business credit cards.

Today’s business owner wants to accumulate money for the future’s “what ifs” without depending on outside financing sources.

Do It for You

Right now, business owners must take care of themselves because no one else is going to do this for them. Valley business owners constantly tell me they are tired of lying awake at night, staring at the bedroom ceiling and worrying about cash flow. A supplemental retirement plan is simple. It does not involve any administration or fees. There is no ERISA or IRS involvement. Where is the best place to invest as you bulk up your SIP? In the past, you had two choices. You had market-driven vehicles that we now realize can be a roller coaster ride or safe vehicles that yielded small or no returns. Here is a new option for you and your professional financial advisor to consider. Life insurance—a product that has been around for more than 200 years—may present the flexibility and growth you seek.

Continue reading “What If I Want to Take Care of Myself?” →

Passive Ownership! My Cake And Eat It Too!

by YOUR BUSINESS WORTH, posted in Company Wealth, Passive Ownership, Working On Your Business

 

One of the options a business owner has to exit their business is to use a Passive Ownership Method.  This allows the business owner to stick around and be involved with the business, but to step away in the daily running of the business.  When done correctly and with planning in advance the owner is fundamentally self-sustaining and does not have to head up the company.  The owner is there to overlook the financial part of the company, much like a mentor. Key people are the self-sustaining element.

Divulge the culture values; sharing the same values as you, and what formed your foundation.  By communicating with your employees what you did in all the areas of growing your business, they will feel a part of it and continue with the same traditions, habits, and ideas which became the business owner’s foundation of success.  This will build a good foundation which will allow the business owner to delegate more of the tasks to others, allowing a self-sustaining company, with a growing management team.  This is the framework that attracts investors to the company, knowing that the traditions and the culture can continue.

Improve cash flow; By increasing cash flow, you create options and markets to buy your business.  For the outside investor, they see a cash flow that will continue without the owner, for the inside buyer, they have the cash flow to purchase the business owner out and complete the purchase of the business over time.  For the passive owner, a good cash flow allows the business to sustain itself, as you enjoy the role of a passive owner; taking out a good salary, paying the key people good salaries, and enjoying life by being a passive owner.  So, how do you create and improve cash flow.  The best way is move cash flow up to the front of the line as a priority.  Having cash flow meetings weekly with your management team will help you with the ideas you need to either increase cash flow through sales, or through expenses attrition. In any event by putting this topic in the front and getting feedback from your management team regularly, you will be able to come up with great ideas to increase cash flow and profits.  Continue reading “Passive Ownership! My Cake And Eat It Too!” →

Exiting Your Business- What You Need To Know and Do!

by YOUR BUSINESS WORTH, posted in Company Wealth, Working On Your Business

    In my last newsletter I discussed the three exit strategies business owners can use when they decide to sell their business.   As a review they are; outside sale, inside transition sale, and passive ownership.  Of course there is the liquidation sale which happens when there is no future planning. Liquidate and see what you can get, however I do not consider this an exit strategy.

So what does a blueprint for exiting your business look like?

First:  You must influence your personal company culture. Employees need to know the values and principles you have formed over the years of your business life so they understand the mission.  What needs to be communicated is how you started the company and how you built it up.  The values behind all that effort needs to be communicated to your employees, vendors, and anyone who will listen, especially potential purchasers of your business. By doing so you will gradually build a strong culture in your own organization that will remain in place whether you’re planning on being absent for a long period of time, or just a short period.     A healthy culture makes your company more attractive to buyers and sets the course for more options such as inside sale, or passive ownership.

Continue reading “Exiting Your Business- What You Need To Know and Do!” →

Is Your Wealth Stuck In Your Business?

by YOUR BUSINESS WORTH, posted in Buy and Sell Agreements, Company Wealth, Working On Your Business

It is very common for business owners to think they can sell their business when they are ready to retire.  In many cases business owners need this wealth to have security in their retirement.   However, they may be miscalculating and be very shocked when the time comes to turn their business into cash.

Transition is inevitable in the life of a business owner.  Someday they will exit their business for one reason or another.  Death, disability, or retirement are the main reasons for an exit, however, there are other reasons why an exit may be needed (Death, disability, divorce, bankruptcy, voluntary leaving, retirement, and non-voluntary leaving).

The major questions to ask

  • What if you don’t want to run a business any longer and you want out?
  •  What if you died, or became disabled?
  •  What if you lost your key person or your key group?
  •  What if you can increase cash flow?

A recent Business Owner Succession Planning Survey (FPA/CNBC) released in 2015, said 78% of small-business owners said they plan to sell their businesses to fund their retirement.  Well over 70% of small business owners do not have any transition, or exit plans.  Even if they have a plan, in most cases it is not concrete and for many reasons will not provide the results they think it will.

Many business owners have the intention to cash out at retirement.  In the urgency to turn business assets into cash many small business owners take back notes to help fund the sale of their business. They are mortgaging their financial security and future based on the continuation of the business which they just sold.  This is one of the many miscalculations in their retirement projections.

Continue reading “Is Your Wealth Stuck In Your Business?” →