shouldn’t be on the market for long and,
in the end, your assets and goodwill can
be considered when valuing the business
to help maximize your return. If your busi-
ness is only marginally profitable, on the
other hand, it can be more difficult to sell.
Unfortunately, you might discover that
your business is worth less than what
you thought. When this happens, plans
have to change. However, if you plan
your exit ahead of time, you can actually
add value to your business.
Just remember that, once you sell
and walk away, the new owner can do
whatever they want with the business.
This can be particularly tough if you have
trouble letting go.
Employee Stock Option Plan (ESOP)
These complex plans can be attractive
because of their minimized tax conse-
quences and protection of employees.
However, financial issues can arise if
you’re not careful. For example, you
might have to accept a promissory note
for part of the purchase price. Or maybe
you’ll have to guarantee bank financing
to buy stock.
An ESOP also depends on management
to continue the company’s success. If the
company doesn’t produce the necessary
cash flow to pay off any debt owed to
you as the former owner, your financial
security is compromised.
Tax-wise, if structured properly, ESOPs
can be favorable, but they also come
under much IRS and DOL scrutiny. A
Certified Exit Planning Advisor (CEPA)
will work with you to minimize or eliminate
ESOP challenges and help you achieve
your goals, but the entire process can
take years.
Liquidation
Ready to close up shop and sell off your
assets? Consider liquidation. Liquidation
is great if you don’t have a buyer lined up,
and you’re looking for a relatively quick
solution. This option brings the lowest
return on investment and creditors have
first claim on any funds generated from
the sale. However, one option might be
to extract business profits over time be-
fore selling the business. Unfortunately,
this method could also reduce the even-
tual sale value of the business. And, as
salary is taxed as personal income, there
will be capital gains to contend with
when the business is finally sold.
No exit plan
Even though it’s not the best option, you
do have the option to have no plan at all
and essentially work until you no longer
can. If you take the “no exit plan” plan, it’s
probably because you either really, really
enjoy what you do; or the company has
no transferrable value and will fail with-
out you; or you simply need that steady
income. Even so, there are some tax
advantages to be found. For example,
your estate will enjoy a step-up in basis
when ownership transfers and estate
taxes might no longer be a con-
cern. Additionally, if you want to
keep your business in the family,
you can transfer ownership of the
business at death to whomever you
wish and avoid capital gains taxes.
Good estate planning is a must for
this route.
The best exit strategy for you is
one that best fits your business
and personal goals. We have
a team of CEPAs to help you
pick the option that best suits
you. Whichever exit strategy
you choose, don’t put off get-
ting started. Planning in advance
gives you the time to do it right –
and maximize your returns. Email
me to discuss your options.
By Paul Weisinger,
CPA/ABV, CVA, CEPA, principal,
[email protected]
(Cleveland office)
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