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My attorney told me not to do it!


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It may not be uncommon for business owners to call one of their advisors to complain, that their lawyer (or CPA or financial advisor) told them that they should not even think of transferring their business to their child and key employees, but they want to do it anyway.

If you’ve made this type of call, I hope your advisor answered with the same definitive "maybe" that fictional owner, Fred Venturer, received.

Case Study
When Fred Venturer called his accountant to complain about his attorney’s warning not to consider a transfer to his child and key employees, the accountant immediately initiated the business exit planning process.

As an advisor skilled in exit planning, Fred’s accountant did not limit the scope of that process to probing Fred’s choice of successors. Rather, she started asking Fred the first questions every owner must answer when thinking about departure:

  • "When do you want to leave?"
  • “How much income or money will you want or need when you leave?"
  • "What do you want to do for your key employees and for your other children?"

The accountant quickly involved Fred’s other advisors (attorney, and financial planner) to brainstorm the many questions and strategies that required Fred’s input. This Exit Planning Advisor Team asked Fred a number of questions beginning with an examination of the financial resources available to Fred.

As the Advisor Team immediately pointed out, it is one thing to design a business exit via a transfer to a management team; it is quite another to ensure the owner’s financial objectives are met in the process. The Advisor Team had to know how Fred defined his financial objectives to determine the size of the gap between his existing financial resources (both personal and business) and the amount of cash he could expect from a transfer of his business to his desired successors. Only then could Fred’s Advisor Team answer Fred’s original question (Can you help me to transfer my company to the successors I choose?) with a firm "yes" or "no."

Fred is not the only owner who has asked (and wanted an answer to) an exit question that can be answered only after the three basic exit planning questions are resolved. (Again, those questions are: When do you want to leave? How much money do you need when you exit your company? and To whom do you want to transfer your company?)

There is a natural tendency for owners (and may be for some advisors who lack experience in exit planning) to focus on the desired outcome and on the route they believe will facilitate that outcome before they know exactly where the owner wants to go. The philosopher Seneca wisely warns, "When a man does not know which harbor he is heading for, no wind is the right wind."

In Fred’s case, he wanted to transfer his business to his management team that included one of his children. Rather than immediately pursue that particular exit path, it was critical for Fred to step back to see if that type of transfer would satisfy his other exit goals and objectives. Would a transfer to his management team allow him to leave on his timetable? Would such a transfer yield the amount of cash he needed to attain his financial objectives?

If not, were there other paths that would allow him to leave at or before his chosen departure date, with more money, or perhaps, greater benefit of his family or other families? These fundamental questions (and other more specific questions) require Fred’s careful consideration (and yours) before charging down any particular path.

Beginning an orderly consideration of your exit objectives today can help to save you time, money and grief. Better still, it can help change the "maybe" answer to the question "Can you help me leave my company to the successor I choose?" to a "Yes."

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Tad Lyle

Tad M. Lyle, RFC, is president of Planning Resources, Inc.and can be reached at tad@tadlyle.com. Tad is a member of Business Enterprise Institute’s International Network of Exit Planning Professionals.

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