An essential element of creating any business plan is to include an exit strategy--the plan for how you will leave your business at some point in the future. Even if you expect to stay with your business for the long haul, an exit plan is crucial. The business succession planning process is in itself complex, and the personal, legal and tax implications of the various options can be difficult to navigate without the help of a qualified professional, especially if investors are involved. Investors will make their decisions based in part on the investment exit strategy that is included in your business plan. The experienced business lawyers at Carosella & Associates can advise you on which strategy (or strategies) may be right for your business. Exit Strategy Options Before you choose your exit strategy, it is important to understand the basics of each option. For each of the options you take into consideration, making a short list of the capabilities and resources you will need to have in place can help you decide which option to choose. IPO If you choose to do an IPO (initial public offering), a portion of your company will be sold in the public markets. Typically, you and your management team will remain in place for a period of years. Investors and managers are usually able to sell some stock, and your company will continue to operate much as it has in the past. Keep in mind that the company will have to adhere to additional regulations, such as Sarbanes-Oxley requirements, with Wall Street analysts and institutional investors scrutinizing your performance. Trying to go it alone with an IPO can be a grave mistake. It is absolutely essential to have qualified, seasoned business attorneys in your corner who can determine if an IPO is an appropriate exit strategy for you. Strategic Acquisition In a strategic acquisition, a company purchases your business, either with cash and/or stock in the acquiring company. The buyer may or may not retain you and your management team, and will sometimes make substantial changes in your company's operations, staff, and line of business. One benefit of strategic acquisition is liquidity. If you sell the company to a strategic buyer you may be able to sell most or all of your stock. A drawback of this exit strategy is that you will most likely relinquish operating control. Management Buyout In a management buyout you will sell the company to current managers. This type of transaction is frequently financed with some combination of debt and/or private equity investment. It offers immediate liquidity to the owner, early shareholders and investors, and allows the company to continue as a private enterprise. While this exit strategy marks a change of ownership, it gives shareholders some liquidity and can provide a smoother transition for the company, its employees and investors. By planning your exit early on, you are placing yourself in a position to steer your business toward its desired outcome. Carosella estate planning lawyers in Montgomery and Delaware counties can also help you determine which exit strategy will best protect your family’s interests, allowing you to focus on building a thriving business. #BusinessSuccessionPlanning, #ExitStrategy, #BusinessPlan
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Business succession planning is the process of determining how to transfer business ownership and relinquish your management role in the business. The business succession planning process can be very complex and personal, especially in a family business. Before a business succession plan can be outlined, it is important to consult with experienced business lawyers who will help you through the various factors that must be considered. Qualified business attorneys can streamline the process so that your plans and goals for the future are clearly defined and your family’s financial security stays intact.
Why plan in advance? Without a plan in place, an unforeseen event such as the death or disability of you or a business partner can have drastic consequences for your family. Planning ahead can ensure that you, your business, and family are protected. If you wish to have your business taken over by family members, you will most likely need to coordinate your business succession plan with your estate plan. Making sure your own finances are in order for retirement is integral to the process as well. Consulting with skilled estate planning lawyers about expectations, family dynamics, and goals for the future is essential when doing small business succession planning. Where do I Begin? Planning for you family’s financial security must include serious and open communication. Everyone who is involved needs to be fully aware of the current state of the business and plans for the future. You can prevent a lot of heartache down the road by creating a strategic plan that includes operating policies, a code of conduct for family members, and a consensus on what the family's role in the business will be. After determining a successor, develop a plan to transfer leadership, including arranging for successor training and setting a retirement date. Creating a Business Succession Plan A well thought-out succession plan can allow you to pass the business on to family members while minimizing and deferring tax liability. A variety of strategies can be used to pass on the business, including:
Some business owners wait until death to transfer their business interests to their children. A self-canceling installment note may also be used in a sale to family members. This option allows the balance of the note to be canceled in the event of your death. If you have a taxable estate, the children receiving the business may also need life insurance to pay estate taxes. Insurance policies owned by irrevocable life insurance trusts will allow beneficiaries to receive proceeds which are both income and estate tax-free. There is no “one-size-fits-all” succession plan that will work for every business. Plans are often adapted due to factors such as the market conditions, plans for expansion and health of the parties involved. Consulting with qualified and experienced attorneys in your local area can help you effectively pass your business on to your heirs and facilitate a smooth transition for both you and your family. Carosella & Associates, P. C. is one such firm located in West Chester, PA providing business succession planning services to its clients. #BusinessSuccessionPlanning, #SuccessionPlanning Developing a strategically thought-out business succession plan is very important to the long-term success of any company. The business succession planning process is very complex, and the personal, legal and tax implications of the various options can be difficult to navigate without the help of a qualified professional. An experienced business lawyer can help you avoid the following pitfalls that may arise. 1. Delaying business succession planning. Small business owners are busy people with pressing matters at hand, but putting off succession planning can have disastrous results. People often avoid it because they get depressed thinking about the subject or believe there is plenty of time to take care of it. Accidents, injuries, and illnesses can happen. This is when a well-developed succession plan can make or break a business and its owner’s legacy. 2. Failing to develop clearly focused and defined goals. A major goal of succession planning should be to address issues relating to when is it time to sell or transfer power. What will the current owners do after the transfer? What percentage of the purchase price can be financed? Who would be a great buyer for the future of the business? A business succession plan defines a company’s successors, but once you have determined who will take over the company, outlining exactly what they will inherit is essential. 3. Failing to obtain an accurate valuation of the business. It is difficult to attract satisfactory buyers or successors unless there is agreement on a reasonable value of the business. Business owners are often surprised that the business they have established and the capital they have acquired has a much lower market value than they personally imagine it to be. An independent valuation can help owners determine a realistic fair market value for their business. 4. Keeping succession plans a secret. When a business succession plan is hidden from staff, it creates the impression that there is no plan or real concern about how the business will continue after the current owners are gone. Keeping succession plans a secret can also create significant missed opportunities, preventing existing managers and employees from identifying themselves as possible successors. Without clear expectations about the future, key personnel could also decide to leave. 5. Failing to train your chosen successor. Many businesses owners overlook the fact that new owners must possess or obtain critical skills and experience to successfully run the business they are buying. If a possible internal successor lacks key skills for running the business, a customized training program should be developed after completing an assessment of the successor’s needed skills and identifying what specific training is needed. 6. Failing to review and update your succession plan. Some businesses make the mistake of believing that after a succession plan is written there is no need to revise it. Succession planning is an ever-changing process that involves laying the groundwork for training, hiring, development and marketing. Succession plans must remain current and relevant, and should be periodically reviewed and updated to address internal changes and fluctuations in the marketplace. Although it can be challenging, with thoughtful planning and the help of experienced business lawyers like Carosella & Associates located in West Chester, PA, successful business succession planning is within your reach. |
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