FOR BUSINESS OWNERS
Exit Planning for Business Owners
Golden Shield's Seven Step Exit Planning process was put in place to help business owners prepare for and reach their financial goals for Exit.
Golden Shield 7 Step Exit Planning Process.
Your Exit Objectives.
Determine your personal and business financial resources to identify any gaps in your Exit Objectives.
Build and Preserve Business Value.
Determine who you will be selling to, third party or insiders.
Establish a Business Continuity Plan.
Personal Wealth, Estate Planning and Tax Minimization.
Sell your business.
Call 229-715-7253 to schedule your initial consultation.
Why is Exit Planning important?
Liquidating your business is probably the largest financial decision of your life. Most business owners are so focused on top-line price and are unaware of fees and taxes associated with the sale of the business. We want to make sure you have realistic expectations of what your business is worth and what your net proceeds will be once the liquidity event takes place. We will work with your financial advisor, CPA, and any other professional you employ to handle your finances to garner projections of your finances and how long your money will last.
We will do a risk assessment of your business from strategic risk, employee risk and hazard risk. Employ tax minimization plans to ensure you pay the least amount to the government from the sell of your business.
Selling your business is very emotional, we want to know and understand what your values are and how to protect those values when you liquidate your business. If your business has been a cornerstone business in the community for decades, we want to make sure the new owner values that and takes care of your employees. Taking care of your employees is important to most exiting owners and we want to make sure the new owners retains them.
There are tons of reasons for you to engage in Exit Planning prior to the liquidity event of your business. If you do hire us or any other certified Exit Planner, you will be glad you did.
A business owner engaged us to help with their Exit Plan and owned a mid-sized fertilizer distribution center.
The business owner had been in business for 30 years and wanted to Exit in the next 5 years. We asked how long have you been saying you wanted to Exit in 5 years? Their response was probably 10 years. We said, "Ok, we are going to put a date of exit as May 10th 2021." The owner only said 5 years and never had a hard line date to Exit, once we had it that was our target.
We asked the business owner how much he wanted to sell his business for and gave us a figure of $6 Million. He said with $6 Million he could live out the rest of his life with himself and his wife traveling, hunting, and fishing. We asked him how much income he would need to do all of that and he said around $350,000 per year. We said great! How much do you have in resources to assist with the $6 Million? He had around $500,000 in other assets.
We proceeded to ask him, how he arrived at the $6 Million figure and he said that is just what he figured. He had no idea. We proposed that he engage us to do a valuation on his business just to see where he was at. Once the valuation was complete we determined the business was valued at $3.5 Million and not the $6 Million. We also discovered that there was about $2 Million in depreciation recapture that would take $500,000 off the top. His total tax bill would end up being around $800,000 on a $3.5 Million sale.
We proposed to the business owner that we should do a full-blown Exit Plan with the objective of closing the gap in resources, tax minimization, and driving transferable value. He had a bookkeeper that had been with him for about 20 years and he never went behind her (she was living to big for her salary.) One of the first line items we suggested was to do a financial audit of the business with a CPA. We discovered the bookkeeper had taken over $400,000 in a 3-year period from the business. We also discovered some of the accounts weren't being billed and collected from this lady's relatives.
He had a sales manager and an operations manager and both were going through the motions but they were important employees. We needed their help to drive cash flow, so we created a Non-Qualified Deferred Compensation plan based on excess cash flow of the business with a vesting schedule of 8 years. We paid them 25% of every dollar over $1 Million in cash flow, we paid them 35% as a bonus and 65% went to the deferred compensation plan.
To minimize taxes we proposed to their CPA that we convert the business to a C-Corp to utilize the Section 1202 long-term gains exemption for original issued stock after 5 years.
We began a presale due diligence of the business and discovered one of their biggest customers was a corporate farm that had a long-term contract. However, this contract was in the name of the owner and not the business and was non-assignable. We negotiated with the client and they agreed to make the contract assignable and put the contract in the name of the business.
Once we got to our target date, we were able to take the business to market for $7.5 million and received offers over the asking price of $7.75 Million. We sold the business as a stock sale and was able to avoid the depreciation recapture and because we utilized the 1202 exemption we paid $0 long term capital gains. He paid a little over $1.3 million in transaction fees and walked away netting $6.2 Million.