Background: A family business we have worked with for years had one owner ready to retire and now facilitates a 4th Generation Succession. The owner ready to retire has been involved in the business for close to 50 years, so his exit was quite emotional! The transition would need to be one that not only had the proper legal structure and financial benefits but confirmed this family legacy was carried on and all parties felt appreciated and respected in the transition. It’s rarely just about the numbers!
Our Case: B&E has been engaged with this client since the 1970s and knew all parties well. Handling the personal Financial Planning for the exiting shareholder also allowed us to see all sides of the transaction from his perspective. Not only were we able to assess the value of the business from the buyer and seller’s view but we ensured the seller would have the financial resources to accomplish all that he wanted as he started this new phase of life.
Six years prior, B&E worked with the business’ CPA and attorney to craft a Buy-Sell Agreement. Each year following the drafting of that agreement, B&E met with the owners to confirm the business value. When the seller indicated a desire to exit, we assembled a list of key issues to address in this transaction. This list including everything from price and payment terms all the way to the cell phones and personal computers. Together with the business’ CPA, we met with all parties of the transaction and created a checklist of essential elements of the transaction. We reviewed the checklist with all parties together and talked about various implications of differing decisions. The parties then took a week to deliberate and returned with their decisions. We now had the “recipe” for the attorney to begin drafting the legal documents to make it all happen. The legal documents were done and a closing was set within eight weeks of the finalized checklist. In our experience, this was record speed for a transaction such as this! All involved parties and advisors indicated with B&E serving as quarterback, this was the smoothest transaction they had experienced.
The Results: The closing happened within the desired timeframe. The seller has now begun the personal aspects of the transition and is enjoying shifting into a fully retired lifestyle. The buyer is moving through the transition of running the company independently. We believe less than 2% of privately held businesses make it through a second generational transfer let alone a third! As with the previous two transitions of this company, two of the three which has B&E involved, the solid business footing and strong respect among all parties warrants that this Next Generation transition will be successful.
Bottom Line: This succession was years in the making with regular open communication among all owners and advisors. Yearly meetings discussing value and transition for six years prior to the transition set a perfect stage for this successful transition. Enlisting the assistance of a team of advisors and allowing them to work in concert of behalf of all parties ensured a collaborative environment in which each parties goals were addressed and any discrepancies readily addressed.
This is a hypothetical example for illustrative purposes only. The experience of this client may not be representative of the experience of all clients and is not indicative of future results. Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planner. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Financial Planning and Investment Advisory Services offered through B & E Investment Advisers, Inc., a State Registered Investment Adviser, Business & Estate Advisers, Inc., B &E Investment Advisers, Inc. and B&E Pension Advisers, Inc are separate entities from Valmark Securities. (1) Names have been changed to protect the identity of the client.