Bussiness Success

Part 3

By Urmas Lupkin

This article is the 3rd in our series of myths related to business succession planning. In this installment we address the myth that “It’s always best to keep the business in the family”. While many business owners see this as their preferred path, there are many reasons why it may not be an option. Perhaps nobody in the family is interested in taking it on or you don’t have faith in the next generation’s ability to get along or to manage the business. In these instances it may be best to look for an outside buyer.

Every business is different and it’s beyond the scope of this article to discuss every specific situation. However there are several key questions to ask yourself. Is the value of your business tied directly to you being there to run it? Are you the one with all the knowledge and customer contacts? Would the business die if you did? If the answers to these questions are yes you may not get fair market value. It would behoove you to develop some management depth or perhaps you would need to stay on for a while after the sale to be able to get maximum value while the business goes through the transition process.

So who are your potential buyers? They could include someone who is in the same industry outside your geographic area that may be looking to expand into the area. It’s also possible that there could be a local competitor who may be looking to grow locally and could benefit from having one less competitor. Or an entrepreneur who sees your business as an industry he or she would like to get into. If none of these buyers are available or they are unwilling to pay full market value another option could be to bring in a key employee to teach them the business over a period of time with formalized plans put in place including a buy-sell agreement with a non-compete clause to facilitate a buyout at a future date. You will want to make sure that the buy-sell agreement is funded with life insurance to ensure there are funds available to execute the buyout in the event of the untimely death of the owner.

In any event selling a business is a complex process with many factors to consider including what’s the most tax efficient way to transition the business and what is best for the owner and the family. You should always consult with a team of professionals including your accountant, attorney, a business broker and someone who has experience in succession planning to help you with these difficult decisions. At Sgroi Financial we can bring the necessary resources to the table to navigate the process. It’s your life, we can help.

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