Owner Succession Planning Presenters: Scott A. Isdaner, CPA, JD Jim Hamlet, CPA, MT Isdaner & Company, LLC (610)

Your Unique Qualities Financial interdependence – business’s financial success depends on the owner Emotional investment – invested many years of hard work, source of family identity, difficult to give up control Family/business overlap – working with relatives Major portion of owner’s wealth – illiquidity problem Co-Owners’ Considerations

Goals of Owners Family Harmony Perpetuate the business Financial security for retirement/disability Financial security for surviving family members Reduce taxes

Entity Issues Partnership, Corporation, Sole Proprietor Identify legal entity Determine rules regardless of form of legal entity

Factors to Consider Role family may play in the succession of management Economic requirements for retirement and timing issues Your professional role: active or inactive Providing for management, employees, customers and suppliers Financial requirements for dependent family members

Benefits of Effective Plan Smooth transition Improved communication with family, employees, customers and suppliers Commitment to future success Happier work environment More financial security Improves customer loyalty

Exit Strategies Sell company to competitor, third party buyer, management team Gift shares to children or relatives in business Liquidate the company and sell assets Do nothing – let heirs worry about it Sell interest in the entity to operating partner

Preparing for Ownership Transition Develop competent management successors Retain key employees Select time frame for transfer Communicate to employees, customers and suppliers Transfers to children and/or relatives

Preparing for Ownership Transition Review method for valuing your business Establish an estate plan Determine tax strategies Fund an effective business succession plan

Valuation Issues Valuation methods Discounts Independent Appraiser

Establishing an Estate Plan Integration of estate and succession plans Transfering business -Will or buy-sell agreement considerations Funding issues: life insurance and buy-sell agreement

For Most Favorable Estate Tax Treatment Cap the tax liability with an estate freeze Use of family trust Gifting Creation of Family Limited Partnership

Income Tax Considerations Allocation of purchase price Capital gains vs. ordinary income Stock vs. asset sale Basis on death

Funding an Effective Plan FUNDING OPTIONS Cash on hand Borrow Sale of assets Insurance

Buy-Sell Agreement Cross purchase vs. redemption Funding source Legal issues

Death or Disability Spouses, estates Definition of total or permanent disability Mandatory purchase and sale Right of first refusal Proportionality if more than one purchaser Mandatory purchase by organization Valuation Payment terms Funding

Funding an Effective Plan DISABILITY Immediate impact – individual and family needs vs. business needs, continue salary vs. impact on company profits, family takes care of disabled vs. others on job helping Long-term impact – hire replacement, continue salary, buy- out partner PREMATURE DEATH Family issues vs. business continuity

Funding an Effective Plan DISABILITY SOLUTION Group Disability Supplemental Disability Business Overhead Expense Disability Buy-Out

Funding an Effective Plan PREMATURE DEATH SOLUTION Life insurance provides family financial independence and business capital to continue Key man insurance