Articles Tagged ‘exit strategy’

Why Owners Choose Not To Sell

Friday, July 31st, 2015

Presented by T. Ray Phillips

Some owners make a choice not to sell their companies for very legitimate reasons. Among them are:

They still have enough fire in the belly to fuel their investment of time and energy in the business. They are grooming interested family members or employees to one day assume the reins.

Some owners, however, have businesses that are prepared for sale, but hesitate. Why? These owners typically don’t sell when they should because: 1) they procrastinate; 2) they fear the unknown; or 3) they fear losing the known.

Procrastination
Procrastination on the part of an owner is not uncommon and has many causes.

First, some owners just don’t know where or how to start planning an exit. If you are one of those owners, then reading the remainder of this article is a good start. The next step is to contact our offices to begin the process of creating an Exit Plan that allows you to cash out of your business and leave in style when you are ready to do so.

Second, some owners think that they can always sell later. These owners overlook the demographic evidence indicating that when most Boomers reach retirement age, the glut of companies in the marketplace may drive prices down. Other owners in this group understand that the level of activity in the Mergers & Acquisition market can have a huge affect on the sale price of a company and their strategy is to wait until the market recovers.

In the third group of procrastinating owners are those who believe that because they have “good” businesses, their exits require no significant planning. When they think about selling, they assume that there isn’t much for them to do because when the time is right, the right buyers will appear and pay them great prices for their companies.It does happen, albeit quite rarely, that the right buyer appears and pays a great price for a great company. However, it makes more sense to prepare for the biggest financial transaction of your life than to entrust the success of your business exit to Lady Luck.

Fear of the Unknown
Owners who suffer from the fear of the unknown usually hold one (or more) of the following opinions:

I don’t think the business is worth enough to satisfy my financial needs and objectives.
If the employees discover I’m trying to sell, they will all quit.
Because I’m indispensable to the company, I’ll be required to work years for a new owner and I don’t like working for anyone!
The sale process will take too long and cost too much.

Fear of Losing the Known
On the other hand, the fear of losing the known is usually based on the following:

The business has been my life—or at least it has given my life a great deal of meaning and focus; without it I may feel lost.
The government will take too much in taxes. It is easier, less risky and more lucrative to stay, enjoy the cash flow and then leave getting paid over time.

What will I do after I sell and leave the business? I don’t know what my life will look like if I leave.

If one (or more) of these concerns resonates with you, let’s meet to assess them.

Disclosure:
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor.

The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm. We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

Securities, investment advisory and financial planning services offered through MML Investors Services, LLC 317-469-9999 Member SIPC Supervisory offices: 900 E. 96th St, Ste 300, Indianapolis, IN 46240. The Family Business Legacy Company, LLC is not an affiliate or subsidiary of MML Investors Services, LLC.

Copyright © 2016 Business Enterprise Institute, Inc., All rights reserved.

T. Ray Phillips, CFBS, AEP, ChFC
trphillips@financialguide.com

The Family Business Legacy Co, LLC
900 E 96th Street
Suite 300
Indianapolis, IN 46240
http://www.familybusinesslegacies.com
317-208-6312

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Current, Former Carmel Signarama Owners Both Come Out Ahead

Monday, November 17th, 2014

Carmel Signarama owner Jay Patel

Carmel Signarama owner Jay Patel


(Carmel, Indiana)—One of the most basic axioms of a successful business deal is that the smoothest transaction is the one which leaves all parties happy. Current Carmel Signarama owner Jay Patel and former owner Joel Hall can both tell you firsthand how true that statement really is. In March, 2014, Patel purchased then-owner Hall’s successful Signarama business where he has since worked to both maintain business continuity to keep existing customers happy, while also putting his own stamp on the business as he seeks continued growth.

From his side of the transaction, Joel Hall, the store’s previous owner, found the process to be just as painless. “I worked hard to build a solid business and increased the value of this location by 400%,” says Hall. “United Franchise Group, the parent company for Signarama, values the overall business ownership process as an exit strategy.”

That’s the purpose of Signarama’s Mentor Program, which Hall headed up for the world’s largest sign franchise. “We found that experienced business buyers value the mentor program. Franchisee peer support and transition planning comes from our group and the new franchisees benefit greatly from taking part in it during a resale such as ours,” Hall adds.

In fact, Hall enjoyed his part in the Signarama Mentor Program so much, it was one of the reasons he sold his business and says, “This is the Best Exit Strategy One Could Have.” He is now pursuing his passion of educating college students on entrepreneurship and owning a business or a franchise.

Former Signarama owner Joel Hall

Former Signarama owner Joel Hall

Patel is working to keep—and grow—upon Hall’s success. “First and foremost, I placed an emphasis on keeping the customers that have been coming here for years,” says Patel. “It was nice to own a business that had already proven to be successful.” No stranger to entrepreneurship, Patel has business acumen gained from over 18 years of successful ownership experience, beginning with a single dry cleaning company which expanded to five by the time he sold the operation, as well as experience as the owner of a non-emergency medical transportation business.

For his part as both a former owner and reseller, Hall shares his advice for the next-generation of franchisees. “There is an incredible amount of work that needs to be put in to running and growing a business. At some point the business will transition into new management or ownership and many owners worry about ‘what am I going to do?’ after the business sells. During my ‘journey’ I found out that I like to teach. So, after 14 years of building a successful business and then selling it, I now teach full time and love it. The hard work does pay off.”

ABOUT SIGNARAMA
Signarama, www.signarama.com, the world’s largest sign franchise, offers branding and messaging solutions in addition to comprehensive sign and graphic services to consumers and commercial customers – from business signs, vehicle wraps, and digital signs, to advertising and marketing services. Signarama is part of a successful system of business-to-business franchise brands and development services under the United Franchise Group. As part of the $49-billion-plus worldwide sign market, Signarama has been at the forefront of the sign industry for more than two decades. Approaching 900 locations worldwide, the company expects to have more than 1,200 locations worldwide by the end of 2016.

For additional information, contact:
Jason Sophian
Sanderson & Associates
jason@sandersonpr.com
312-829-4350

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Buy-Sell Agreements Should Protect You, Your Co-Owners And Your Company

Wednesday, November 5th, 2014

Presented by T. Ray Phillips

Imagine, on the eve of your wedding, that you plan to divorce, on a friendly basis of course, in 15 years or so. During those 15 years, you will work diligently, and quite successfully, to build a business.

On the preordained day that your marriage ends, you announce that you are willing to give your soon-to-be ex-spouse one-half of your company’s business value—in cash. And you let your “ex” value your company because those are the terms of the agreement the two of you signed a year after you were married.

Sounds ridiculous, no? Yet, you may have done something quite similar (and similarly ridiculous) in your business with your co-owners.

Few owners begin working together with an expectation of future acrimony, much less litigation. Fewer still give thought to one day leaving the business—even on friendly terms. Indeed most exits are not precipitated by a disagreement among co-owners; instead owners leave for a variety of reasons and simply want to do so with their share of business value.

And remember, one day you will leave your business.

Over time, in business as in marriage, partners can grow apart. We’ve all witnessed the resentments, discord, and wastefulness of a friend’s or acquaintance’s needless nasty divorce. Business divorces can be equally unpleasant—with an added twist: One may be unable to leave the business, or force a partner to leave, without appropriate tax and legal planning.

When you or a co-owner wants out, what will happen? Chances are that when you turn to your company’s buy-sell agreement, you will find that it is woefully out of date. You may also find that it controls the terms of your (or any owner’s) exit from the business not only upon death, but also during lifetime.

If you haven’t looked over your company’s buy-sell agreement since you signed it, dust it off and check out at least four key provisions:

Lifetime and death transfers of ownership:
When must an owner sell, or offer to sell?
When must an owner (or the company) buy and when does it have the option to buy?
How will the value of the company and the value of a departing owner’s interest be determined?
Does the agreement mandate the use of an independently determined Fair Market Value at the time of transfer? If not, the valuation will favor you or the other owner. It will not treat you even-handedly.
What are the terms (length, down payment, interest and guarantees) of the buyout?
We generally assume that buy-sell agreements control the transfer of an owner’s interest when he or she dies or becomes disabled. Indeed, they do that. But they usually do much more and if you don’t appreciate how much more, disaster looms.

At his annual physical, Steve Hughes complained that he was bone tired. After a battery of tests, Steve’s doctor observed that, while there was nothing physically amiss, Steve did seem depressed. After some introspection, Steve was able to articulate that he had no interest in continuing as a partner in a successful CPA firm. Like many owners, Steve had lost the passion and commitment to the business that still stoked his younger co-owners. He decided to sell out before his partners demanded it.

Steve broke the news of his departure to his two partners and noted that their buy-sell agreement controlled only a buyout at death and an option for the company to buy Steve’s stock if he were to sell it to a third party. Attempting to sell a partial interest in most businesses to a third party is always a difficult proposition, but current economic challenges made that course of action impossible.

Steve and his partners were left in a classic dilemma: remaining shareholders want to purchase the departing shareholder’s interest so that future stock appreciation—due solely to their efforts—would be fully available to them. Conversely, because the profits of a closely-held corporation are either accumulated by the company or distributed to the active shareholders in the form of salaries, bonuses and other perks, the departing shareholder (now an inactive owner) rarely receives significant income in the form of distributions or dividends.

Naturally, Steve wanted and needed maximum value for his interest while his co-owners were convinced that the company’s cash flow could not support Steve’s buyout.

So, look again at your business continuity agreement: If you are the one leaving, is it as fair as it is if you are the one left behind?

When you sit for the first time across the bargaining table from your partner, you will want that table set with a fair valuation method, a thoughtfully designed lifetime buyout provision (that may well reduce the cash flow required for a buyout by 20 to 30 percent), and manageable payment provisions. Since it is exceedingly difficult to design these provisions when buyer and seller are at the bargaining table, agree to and document the valuation, cash flow, tax, and payment provisions long before potential discord or differences of outlook arise.

Disclosure:
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor.

The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm. We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

Securities, investment advisory and financial planning services offered through MML Investors Services, LLC 317-469-9999 Member SIPC Supervisory offices: 900 E. 96th St, Ste 300, Indianapolis, IN 46240. The Family Business Legacy Company, LLC is not an affiliate or subsidiary of MML Investors Services, LLC.

Copyright © 2016 Business Enterprise Institute, Inc., All rights reserved.

T. Ray Phillips, CFBS, AEP, ChFC
trphillips@financialguide.com

The Family Business Legacy Co, LLC
900 E 96th Street
Suite 300
Indianapolis, IN 46240
http://www.familybusinesslegacies.com
317-208-6312

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Due Diligence

Saturday, November 10th, 2012

No experienced buyer purchases a company without first learning everything there is to know about it. That learning process is known as “due diligence.”

During due diligence, a buyer, its accountant(s), lawyer(s) and any other professional advisor it employs will examine every aspect of every one of the seller’s contracts, procedures, relationships, plans, agreements, systems, leases, manuals and financial documents.

This process requires an extraordinary amount of time and attention on both the buyer’s and the seller’s parts. That’s why we recommend that owners initiate the due diligence process as soon as they decide to sell their companies and have an indication from a transaction intermediary that the business is salable for sufficient money to meet their financial security wishes and needs.

Starting the due diligence process well before the buyer requests documents gives sellers the opportunity to remove any obstacle that might prevent a buyer from traveling a straight path to closing. Keeping the road to closing free from unnecessary impediments compresses the time between the buyer’s offer and the closing. In a sales transaction, time rarely favors the seller so owners want to condense the process.

Buyers are looking for the skeletons in your closet and are very skilled at finding them. They are looking for malfeasance or undisclosed material risks. They will look for fraud (on the part of an owner or manager) or any misrepresentations you have made such as improperly recognized revenues or expenses, and any information you have omitted, such as: unpaid taxes, pending or threatened litigation or obsolescent business equipment, processes, products or services.

The buyer is also looking for information that would affect the value of the company and the advisability of purchasing it. Up to the moment due diligence begins, you have controlled the information flowing to the buyer. You give up much of that control during the buyer’s due diligence.

Finally, if the buyer’s search for malfeasance, misrepresentations or information that would affect the company’s value yields no results, the hunt is on for anything that the buyer could use to lower the price or improve its terms. And that ulterior motive—lowering price and improving the buyer’s terms—permeates the entire due diligence process. Is it any wonder that sellers hate (and that is not too strong a word) this process?

And, is it any wonder that we strongly suggest (as we do) that you and your advisors clean up every contract, agreement, stock book, record of corporate actions, manual, lease, or threatened law suit BEFORE you take your company to market?

Disclosure:
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor.

The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm. We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

Securities, investment advisory and financial planning services offered through MML Investors Services, LLC 317-469-9999 Member SIPC Supervisory offices: 900 E. 96th St, Ste 300, Indianapolis, IN 46240. The Family Business Legacy Company, LLC is not an affiliate or subsidiary of MML Investors Services, LLC.

Copyright © 2016 Business Enterprise Institute, Inc., All rights reserved.

T. Ray Phillips, CFBS, AEP, ChFC
trphillips@financialguide.com

The Family Business Legacy Co, LLC
900 E 96th Street
Suite 300
Indianapolis, IN 46240
http://www.familybusinesslegacies.com
317-208-6312

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