Whether it”™s selling a company or passing it down to the kids, experts at a recent roundtable agreed business owners need to improve their exit strategies.
“When business owners try to make (exit) decisions, they try to maintain a certain lifestyle,” said Nicholas Palumbo, an Opus Advisory Group L.L.C. partner. “But they make financial decisions based on opinions of popular media and other sources, without any facts. They think they need less money when in fact they need more.”
Addressing the fundamental pitfalls and strategies for navigating a successful company exit, Citrin Cooperman, an accounting, tax and consulting firm with an office in Norwalk, hosted the final installment of a three-part series Dec. 6 at the Fairview Country Club in Greenwich.
At the event, “Driving Off into the Sunset,” experts discussed succession planning, tips for selling a business and employee stock ownership options.
Previous panels in the series addressed obstacles in starting new businesses and growing existing ones through effective management.
Mentioning a list of wealth-eroding factors such as taxes, inflation, technological changes, market volatility and unexpected life events, Palumbo stressed the importance of planning ahead and making informed decisions when it comes to an owner”™s final chapter.
For owners who have much of their wealth tied up into the ownership of the business, Michael Markhoff, an estate planning attorney at Danziger & Markhoff L.L.P. in White Plains, N.Y., said recapitalizing, where a portion of the business is sold, can result in an immediate payoff for an owner as well as retained family ownership.
As many business owners have children, Markhoff said it”™s often a parent”™s desire to see their business and wealth be passed on to their children. However, one child may be more active in the business than the other, which can cause turmoil, he said.
Splitting the remaining shares of the company, Markhoff stressed that each child should remain equal but that the inactive child should be given the option to sell his or her share while the active child is given control.
When selling a business, there are many pieces of advice owners should keep in mind, said Michael Carter, managing director of Fairfield investment banking firm Carter Morse & Mathias.
Above all, Carter said owners should have a solid understanding of the value of their company and know when to sell. He suggested owners follow the mergers and acquisitions of potential buyers and track the selling points of their competitors. Additionally he said that the highest bidder may not always be the most valuable.
Although relatively rare, another exit strategy is implementing an employee stock ownership plan (ESOP), said Alex Meshechok, managing director for investment banking firm CSG Partners L.L.C.
An ESOP gives a company”™s workforce ownership in the company at no cost and the shares are sold when the company”™s owner leaves or retires.
The plan gives an immediate payoff without a heavy capital gains tax and business owners can still remain attached to the company. It also allows the owner to sell a substantial portion of the shares to his or her children.
“It”™s impossible to do any of this in a silo,” said Markhoff. “It”™s truly a team effort. It”™s impossible for any one of you to just sit down with an attorney. Everyone has to be around the table.”
