document.write('<p><b><font class="heading">Maximize Your Wealth With A Winning Exit Plan</font></p><p><font class="text">How To Get W');
document.write('hat You Want When You Leave Your Business</b></p><p>Few things are certain in business life, but there is one universa');
document.write('l truth: Be it a carefully planned decision or the result of fate’s swift hand, someday you will leave your business.</p');
document.write('><p>Your exit is going to take place in one of two ways:</p><ol><li><p>You will transfer ownership of the business d');
document.write('uring your lifetime because you’ve decided you want out. Without planning, this will probably mean that you have to liqu');
document.write('idate. With planning you will be able to sell the business to a third party, to key employees or co-workers, or to famil');
document.write('y members – all at minimal tax rates.</p></li><li><p>You will die or become totally disabled, and the business will ha');
document.write('ve to be liquidated unless some type of business continuity arrangements have been planned and documented.</p></li></ol>');
document.write('<p>Most owners measure their satisfaction with their business in terms of the income, wealth, identity, challenge, sti');
document.write('mulation, satisfaction and pride that it provides to them. Consider another definition of success that measures a busine');
document.write('ss – not only by how well it operates under your ownership and by the benefits it provides -- but also by the rewards it');
document.write(' will bestow when you leave it. Because in the end, what you really want and need from your business is the ability to l');
document.write('eave it – under the most favorable conditions. The only way you as an owner can do this successfully is to create an exi');
document.write('t plan as early as possible and stick to that plan as long as you maintain your business.</p><p>&nbsp;<br><b>Developin');
document.write('g Your Exit Plan</b></p><p>What exactly is an Exit Plan that will allow you to leave your business in style and how do');
document.write(' you create it? Despite the almost infinite variety of businesses and business owners almost all exit plans contain comm');
document.write('on elements or goals. Generally these goals fall into three broad categories: </p><ol><li><p>To create and preserve th');
document.write('e value of the company;</p></li><li><p>To provide a means to exchange that value for money with the least tax conseque');
document.write('nce possible;</p></li><li><p>To meet personal and family needs by providing security and continuity to your business a');
document.write('nd for your family either upon your planned departure or if disaster strikes – upon your death or disability.</p></li></');
document.write('ol><p><b>Creating and Preserving Value In Your Business</b></p><p>Most entrepreneurs are so dedicated to the worthy ');
document.write('purpose of making money that they have little or no time to spend on creating and preserving value for their business. Y');
document.write('ou must find the time because…</p><p>First, to exit the business in style, you will need cash. That source of cash is ');
document.write('the business. To determine the amount of cash you will receive, we must know the value of the business.</p><p>Second, ');
document.write('if you intend to give the business to children, the business must be valued and that value must be used for gift tax pur');
document.write('poses.</p><p>Third, the business typically comprises the great majority of an owner’s total wealth. The IRS knows this');
document.write(' just as surely as you do. Determining the value now, allows you the opportunity to design an Exit Plan taking your busi');
document.write('ness into account with the goal of minimizing the IRS’s take.</p><p>Fourth, well-designed key employee incentive compe');
document.write('nsation planning is central to increasing business value. Business value is often used as a measuring rod for such plans');
document.write('.</p><p>Fifth, if an owner goes through this exercise well before the business is sold or transferred, he or she will ');
document.write('be able to pinpoint the factors that are crucial to measuring and increasing (or decreasing) the worth of the business.<');
document.write('/p><p>&nbsp;<br><b>How Much Is Your Business Worth?</b></p><p><b>Determining The Value</b></p><p>Valuation of your');
document.write(' business is likely to be performed by your CPA or a business appraiser using a methodology consistent with the approach');
document.write('es sanctioned by the IRS. This valuation will determine a range of fair market values for your business for purposes of ');
document.write('gifting, estate taxation, and general planning. Note that this fair market value is not the same as the sales price for ');
document.write('your business. To determine the sales price, the fair market value is used as a hypothetical starting point and adjusted');
document.write(' to accommodate factors like timing of the sale and industry cycles, current condition of the merger and acquisition mar');
document.write('ket, interest rates, and geographic location among others.</p><p>The technical details of business valuation are beyon');
document.write('d the scope of this report. But one aspect worth noting is that estimating the value of your business will be critically');
document.write(' dependent on who the business will be transferred to. If you are selling the business to an outside third party, you wi');
document.write('ll seek the highest possible value for your ownership interest. If you are transferring ownership to your children, you ');
document.write('must make every effort to develop the lowest defensible value for your ownership interest. This counter intuitive strate');
document.write('gy is due to the huge role the IRS plays in the transfer of your business.</p><p>If you decide to sell to an outside t');
document.write('hird party, it will be for cash and you’ll want all you can get via a high value. But your children, your employees, you');
document.write('r co-owner don’t have much of that green stuff. Their source of money, or cash flow, is the same as yours – the business');
document.write('. They will need to earn money on the business and pay income tax on it (tax #1) then pay the balance to you to buy the ');
document.write('business – at which time you will pay a second tax on the gain (tax #2). The higher the business value, the greater the ');
document.write('purchase price. The greater the purchase price, the greater the double tax bite.</p><p>For example, if company earning');
document.write('s are distributed to the purchaser (let’s say a key employee), it will be taxed to her as compensation – salary or bonus');
document.write(' money. She will then pay the after tax money to you (say 65 cents of the original dollar of earnings). You in turn pay ');
document.write('a capital gains tax on the 65 cents received (assume little or no basis on your ownership interest, therefore a tax of a');
document.write('bout 25 percent). The net is less than 50 cents on each dollar earned and paid out by the company.</p><p>In other word');
document.write('s, all purchasers, other than outside third parties, need to look to the earnings of the company for money to pay to you');
document.write(' because they have no money of their own. This results in a double tax paid on the money received by you (taxed once as ');
document.write('the employee/purchaser earns it and once when you receive it for your stock). The higher the business value, the higher ');
document.write('the tax, the more difficult it is to accomplish a successful transfer… the less likely you will leave your business in s');
document.write('tyle. Methods for avoiding this double taxation are rather complex for our discussion here, but keep in mind that determ');
document.write('ining the value of your business will require you to decide early on how you wish to transfer it.</p><p>&nbsp;<br><b>H');
document.write('ow To Motivate And Retain Key Employees Through Ownership</b></p><p>The one indispensable component of a valuable busi');
document.write('ness is its top employees. Think about it: your top employees are even more valuable than you are for the purpose of cre');
document.write('ating value for your ownership interest. The more valuable you are to the business, the less valuable the business will ');
document.write('be when you leave it. What you need to do is leave behind key employees who add significant value to the business for se');
document.write('veral important reasons:</p><ol><li><p>Properly motivated by a profit-based incentive plan, key employees do increase ');
document.write('the value of your business.</p></li><li><p>Key employees often become potential owners when you decide to retire or mo');
document.write('ve on to another venture.</p></li><li><p>If you decide to sell to a third party, the continued existence of a stable, ');
document.write('motivated management team will increase the purchase price.</p></li></ol><p>Key employees are not necessarily employee');
document.write('s in key positions. Key employees think and act a lot like you, they are eager to be given responsibilities and challeng');
document.write('es. Like you, they want to see the business grow and prosper, and they want to grow and prosper along with it. They take');
document.write(' pride in being identified with, and contributing to, a successful business. In short, they act like owners. Their conti');
document.write('nued presence in the business is necessary if the business is to thrive.</p><p>There are several incentive packages yo');
document.write('u can implement to retain and motivate key employees. These incentive packages help your key employees reach their finan');
document.write('cial and psychological goals – if they stay with you. As your key employees attain their goals, the design of these ince');
document.write('ntive packages should also help you to achieve your ownership goal of building business value (and eventually converting');
document.write(' that value into money). Take a hard look at your current employee benefit programs, especially those aimed at your key ');
document.write('employees. Elements of your incentive program should include:</p><ol><li><p>Financially attractive awards that create ');
document.write('a potential bonus of at least 10 percent of the key employee’s annual compensation. Anything less than this will not be ');
document.write('sufficiently attractive to motivate the key employee to modify his or her performance to make the company more valuable.');
document.write('</p></li><li><p>Specifics; that is, determinable performance standards, such as the company reaching a certain net inc');
document.write('ome or revenue level.</p></li><li><p>Structure to increase the company’s value such that, as the key employee reaches ');
document.write('measurable objective standards, the net income of the company increases.</p></li><li><p>Incentive reward vesting or “g');
document.write('olden handcuffs” that link payment to tenure thus encouraging the employee to remain on the job in order to receive the ');
document.write('reward.</p></li><li><p>Face-to-face meetings with your key employees to discuss the plan and make sure the incentive a');
document.write('rrangements are thoroughly understood and all questions answered.</p></li></ol><p>&nbsp;<br><b>Four Ways To Leave Your');
document.write(' Business – Which One Is Right For You?</b></p><p>Selecting your successor is a fundamental objective that is decided ');
document.write('early in the Exit Planning process. Almost all owners want to transfer the business to other family members, an employee');
document.write(' or a co-owner; only about 5 percent want to sell to an outside third party. Interestingly, however, most persons first ');
document.write('identified as successors do not usually end up as the ultimate owners.</p><p>Choosing your successor involves a carefu');
document.write('l assessment of what you want from the sale of your business and who can best give it to you. There are only four ways t');
document.write('o leave your business. If you know these methods and decide in advance which one you prefer, then you have a better chan');
document.write('ce of leaving your business under terms and conditions you choose. Without planning you are more likely to settle for te');
document.write('rms and conditions beyond your control.</p><p><b>&nbsp;<br>1. Transfer of Ownership to Your Children</b></p><p>50 pe');
document.write('rcent of typical business owners want to transfer their business to their children. Fewer than one in three of these own');
document.write('ers end up doing so. Because this is the riskiest way to leave your business, you must prepare for failure by developing');
document.write(' a contingency plan to convey your business to another type of buyer.</p><p>Transferring a business within the family ');
document.write('fulfills many people’s personal goals of keeping their business and family together. It can provide financial well-being');
document.write(' for younger family members unable to earn comparable income from outside employment, as well as allow you to stay activ');
document.write('ely involved in the business with your children until you choose your departure date. Transferring your business to your');
document.write(' children will also afford you the luxury of selling the business for what you need to live on, even if the value of the');
document.write(' business does not justify that sum of money. You will determine how much you need or want, rather than be told how much');
document.write(' you will get.</p><p>On the other hand this option also holds great potential to increase family friction, discord, an');
document.write('d feelings of unequal treatment among siblings. The normal objective of treating all children equally is difficult to ac');
document.write('hieve because one child will probably run or own the business at the perceived expense of the others. At the same time f');
document.write('inancial security is normally diminished rather than enhanced and the very existence of the business is at risk if it’s ');
document.write('transferred to a family member who can’t or won’t run it properly. In addition the vagaries of family dynamics may also ');
document.write('significantly diminish your control over the business and its operations.</p><p>&nbsp;<br><b>2. Sale to Other Owners o');
document.write('r Employees</b></p><p>One of the great advantages of having other owners in your business is that they can be your mea');
document.write('ns to retirement. Especially with smaller businesses, a common retirement planning technique is to have a younger indivi');
document.write('dual buy into your business while you are still active. Upon your retirement, the younger owner will purchase your remai');
document.write('ning stock.</p><p>This plan can be advantageous because the younger person learns the business – its structure, employ');
document.write('ees, customers, operation, and management – under your tutelage. More important for you, the younger person’s capabiliti');
document.write('es (as well as his weaknesses) are known to you, so you have a pretty good idea of how your business will be run after y');
document.write('ou leave. And most important of all, the business can be sold to a market you create and control. You structure the deal');
document.write(' ahead of time to suit your particular needs and objectives.</p><p>Disadvantages in this plan are that there is no cas');
document.write('h up front, unless you as the owner have pre-funded the sale, but even then, you have probably pre-funded with money tha');
document.write('t was yours anyway. A great risk also exists in the fact that the buyout money comes from the future earnings of the bus');
document.write('iness after you leave it. Employees are often employees because they don’t have an owner “mindset.” They’re not entrepre');
document.write('neurs and they don’t respond well to the challenges and pressures of ownership. These disadvantages apply especially to ');
document.write('businesses worth more than $2 million. The owner simply has too much money and financial independence at risk, and the p');
document.write('rice will be too high for an employee to afford.</p><p><b>&nbsp;<br>3. Sell It To A Third Party</b></p><p>In a retir');
document.write('ement situation, a sale to a third party too often becomes a bargain sale – the only alternative to liquidation. But if ');
document.write('the business is well prepared for sale this option just might be your best way to cash out. In fact you may find that th');
document.write('is so called “last resort” strategy just happens to land you at the resort of your choice.</p><p>Although many owners ');
document.write('don’t realize it, you should get most or all of your money from the business at closing. Therefore, the fundamental adva');
document.write('ntage of a third party sale is immediate cash or at least a substantial up front portion of the selling price. This ensu');
document.write('res that you obtain your fundamental objectives of financial security and, perhaps, avoid risk as well. A second unantic');
document.write('ipated advantage in selling to a third party is the ability to frequently receive substantially more cash than your CPA ');
document.write('or other business appraiser anticipated because the market place is “hot.” Finally, this may be the best option for a bu');
document.write('siness that is to valuable to be purchased by anyone other than someone who has access to a considerable source of money');
document.write('.</p><p>If you do not receive the bulk of the purchase price in cash, at closing, however, your risk will suddenly bec');
document.write('ome immense. You will place a substantial amount of the money you counted on receiving in the unpredictable hands of fat');
document.write('e. The best way to avoid this risk is to get all of the money you are going to need at closing. This way any outstanding');
document.write(' balance payable to you is “icing on the cake.”</p><p><b>&nbsp;<br>4. Liquidate It</b></p><p>If there is no one to b');
document.write('uy your business, you shut it down. In a liquidation the owners sell off their assets, collect outstanding accounts rece');
document.write('ivable, pay off their bills, and keep what’s left, if anything, for themselves.</p><p>The primary reason liquidation i');
document.write('s considered is that a business lacks sufficient income-producing capacity apart from the owner’s direct efforts and apa');
document.write('rt from the value of the assets themselves. For example if the business can produce only $75,000 per year and the assets');
document.write(' themselves are worth $1 million, no one would pay more for the business than the value of the assets.</p><p>Service b');
document.write('usinesses in particular are thought to have little value when the owner leaves the business. Since most service business');
document.write('es have little “hard value” other than accounts receivable, liquidation produces the smallest return for the owner’s lif');
document.write('elong commitment to the business. Smart owners guard against this. They plan ahead to ensure that they do not have to re');
document.write('ly on this last ditch method to fund their retirement.</p>');