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© 2008 Business Enterprise Institute, Inc. Business Section of the Utah Bar Association The Exit Planning Executive Briefing February 9, 2011 Presented by Gregory W. Williams Exit Strategies Specialist, LLC 6340 South 3000 East, Suite 500 Salt Lake City, UT 84121 (801) 453-2271
© 2008 Business Enterprise Institute, Inc. Ingredients of a Successful Exit An Exit Plan based on the owner’s objectives. An experienced team of advisors to design and implement the plan. Cash flow and a quantified business value. A strong management team in place. Time.
© 2008 Business Enterprise Institute, Inc. The Seven Step Exit Planning Process™ Step 1 – Identify Exit Objectives Step 2 – Quantify Business and Personal Financial Resources Step 3 – Maximize and Protect Business Value Step 4 – Ownership Transfer to Third Parties Step 5 – Ownership Transfer to Insiders Step 6 – Business Continuity Step 7 – Personal Wealth and Estate Planning
© 2008 Business Enterprise Institute, Inc. Step One: Identify Exit Objectives Universal Objectives How much longer does the owner want to work in the business before retiring or moving on? _________ years What annual after-tax income does the owner want during retirement (in today’s dollars)? $_________ To whom does the owner want to transfer the business? –Family? –Co-Owner? –Key Employee(s)? –Outside party? –ESOP?
© 2008 Business Enterprise Institute, Inc. Step One: Identify Exit Objectives Working with a Team of Advisors No one professional has all the answers. Diverse skills and talents are necessary. Team approach minimizes time and cost. –If properly facilitated and led.
© 2008 Business Enterprise Institute, Inc. Step One: Identify Exit Objectives Who is on the Advisor Team? Exit Planner Financial Planner Insurance Advisor Investment Advisor Business Attorney Estate Planning Attorney CPA Valuation Specialist Business Broker Investment Banker Business or Management Consultant Banker
© 2008 Business Enterprise Institute, Inc. Business Value Benefits to the Owner Provides a baseline value by projecting cash flow. Measures business and personal resources both today and as a basis for future projections. Allows you to monitor progress toward the stated objectives.
© 2008 Business Enterprise Institute, Inc. Step Two: Quantify Business and Personal Financial Resources Role of the Attorney Assist in determining appropriate type of valuation. Help select valuation advisor depending on owner's objective (sale to third party or transfer to insider). Evaluate methods of reducing business value (e.g. Unfunded Non-Qualified Deferred Compensation Plan). Opportunity: –Provide new services and value to existing clients.
© 2008 Business Enterprise Institute, Inc. Step Three: Maximize and Protect Business Value Benefits to the Owner Grow business value and intangible value of the business. Reduce income taxes upon sale of business. Protect assets from potential business and personal creditors. Create ability to sell the business. Motivate and keep Key Employees.
© 2008 Business Enterprise Institute, Inc. Step Three: Maximize and Protect Business Value Promote Value Through Value Drivers Focus on increasing cash flow. Develop operating systems that improve sustainability of cash flows. Solidify and diversify customer base. Implement strategies to grow the company. Improve company performance as measured by industry metrics. Build a solid management team and groom a successor.
© 2008 Business Enterprise Institute, Inc. Step Three: Maximize and Protect Business Value Role of the Attorney Conduct Annual Planning Meeting with all Advisory Team members present. Periodically review entity status (C vs S). Identify tools to protect business value during periods of growing or flat performance. Analyze federal and state law implications of proposed strategies. Draft legal documents necessary to implement recommended strategies. Opportunity: –Meet with client, typically 3-15 hours. –Draft summaries of recommended documents, as well as final documents. Fees
© 2008 Business Enterprise Institute, Inc. Step Four: Ownership Transfer to Third Parties Benefits to the Owner Cash at closing. Eliminate financial risk. No family succession issues. Speed of exit.
© 2008 Business Enterprise Institute, Inc. Step Four: Ownership Transfer to Third Parties Third Party Sales – Not Just About the Business Ability to sell and business value are determined by: –Intrinsic Value: the value drivers. –Extrinsic Value: the value the market places on the business. –Effectiveness of the sale process.
© 2008 Business Enterprise Institute, Inc. Step Four: Ownership Transfer to Third Parties Role of the Attorney Tax analysis related to the proposed sale of company. Legal due diligence. Preparation and review of all transaction documents. Negotiation of a definitive agreement. Design and draft Sale Bonus plan for important employees. Opportunity: –Representation of owner/business in sale (generating fees). –Respond to post-closing indemnification claims.
© 2008 Business Enterprise Institute, Inc. Step Five: Ownership Transfer to Insiders Benefits to the Owner Achieves Exit Objective of: –Selling to Key Employee Group (KEG). –Transferring to a Child. Motivates and retains key employees. Planning reduces risk and increases amount of money received.
© 2008 Business Enterprise Institute, Inc. Step Five: Ownership Transfer to Insiders Role of the Attorney Analyze legal issues related to proposed transactions (state, federal and tax law compliance with documents). Draft summaries of proposed agreements. Draft and implement agreements and other documents implementing transfer/s. Draft documents providing incentives to key employees not receiving ownership. Opportunity: –Generate revenue from creation of documents that implement one or more ownership transfers. –Generate fees on a flat or hourly fee basis for document drafting, implementation and follow-up.
© 2008 Business Enterprise Institute, Inc. Step Six: Business Continuity Planning Benefits to the Owner Objectives can still be achieved if you don’t survive your exit. Retains ownership and control of company if co-owner departs. Can force non-contributing owners to leave the business. Provides consistency between lifetime and death objectives. Ensures survival of the business for the benefit of others. Results in family receiving value of owner’s interest, in cash.
© 2008 Business Enterprise Institute, Inc. Step Six: Business Continuity Planning Role of the Attorney Prepare legal business and estate planning documents. Prepare Stay Bonus Agreement. Assist owner in positioning business to operate independently if owners is unable to remain involved. Opportunity: –Prepare business continuity documents generating fees. –Implementation of documents and agreements if a death or disability occurs.
© 2008 Business Enterprise Institute, Inc. Step Seven: Personal Wealth and Estate Planning Benefits to the Owner Preserve wealth, minimize taxes using both lifetime and death planning tools. Coordinates and integrates lifetime exit objectives wishes with estate plan. In effect, estate planning becomes part of business planning.
© 2008 Business Enterprise Institute, Inc. Step Seven: Personal Wealth and Estate Planning Role of the Attorney Perform overall estate planning. Revise and update estate plan as circumstances change. Coordinate planning for business and non-business assets when a child is the proposed successor owner. Educate owner on structure and function of estate planning strategies. Transfer business interests to children prior to a third party sale. Create related entities to be partly owned by children. Perform charitable income/estate tax planning.
© 2008 Business Enterprise Institute, Inc. Step Seven: Personal Wealth and Estate Planning Role of the Attorney Opportunity: –Collect fees for creating and updating estate planning documents (Fees generally between $5K and $25K). –Collect hourly fees for family meetings to explain planning to beneficiaries. –Collect probate and estate administration fees. –Manage personal asset protection and transfers.
© 2008 Business Enterprise Institute, Inc. Copyright 2008 ESS
© 2008 Business Enterprise Institute, Inc. The Exit Planning Executive Briefing At some point, every owner leaves his or her business - voluntarily or otherwise. At that time, every owner wants to receive the maximum amount of money in order to accomplish personal, financial, income and estate planning goals
© 2008 Business Enterprise Institute, Inc. Thank You Gregory W. Williams, MSFS, CFP Certified Family Business Specialist Exit Strategy Specialists, LLC 6340 S. 3000 E., Suite 500 Salt Lake City, Utah 84121 (801) 453-2271 firstname.lastname@example.org
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