Broker Check

Dierdre Collins, MSFS, RFC
Tim Murphy, AIF, RFC

 

Succession Strategies

Are you the owner of a business or professional practice? If yes, you have probably dealt with change effectively in your career thus far. Have you fully considered the impact a change of ownership will have on your business or practice? Our specialists suggest that you devise two plans; a disaster plan and a succession plan. The disaster plan provides for the continuity of the business or practice if you die or become disabled. The succession plan is designed with the goal to maximize the value that you receive as well as preserve your legacy when you ultimately transfer the business or practice.

  • Practice Succession Strategies.
  • Practice Continuation Strategies.
  • Estimate of Value.
  • Assists Buyers & Sellers.
  • Access to Buyer and Buy-In Financing.
  • Review Existing Buy-Sell Agreements.

Contact us today.

 

We provide solutions for today’s environment. Many business owners know who they want to sell their business to. It may be an associate, a key employee, a child or an existing co-owner, but it is generally someone they know and trust. Unfortunately, several problems often surface that stand in the way of completing the transfer. First, the buyer usually does not have the ability to pay cash. Second, the buyer probably does not have the ability to borrow the purchase price from a bank. Third, the seller and buyer value the business differently. Fourth, the inability to solve the first three problems begins to strain the relationship. Potentially further compounding the stress for the seller is the uncertainty of whether they will have enough money to live comfortably after the sale.

These problems have solutions. Two things need to take place simultaneously. First, an analysis must be performed to determine the maximum amount that the buyer can pay to the seller to put an upper limit on valuation. Second, a professional estimate of the seller’s lifetime needs must be made and then a determination made as to whether the seller’s assets (including the business) can meet those needs.

Before going any further, a few observations have been made about buyers. First, due to the aging of baby boomers, there are more sellers than buyers. Second, buyers are smart – after all, they wouldn’t have been chosen as the next generation of owners if they weren’t. Third, buyers can’t work for free like the seller did.

Those observations make many time-honored valuation formulas obsolete. Forget the formulas. The most that the buyer can pay is the amount of profit that the business generates over a three to seven year period of time after paying the buyer a reasonable amount of compensation. Buyers know this, banks agree with this and sellers need to understand this.

It is not all bad news for sellers. Techniques for structuring sales of practices have evolved in two directions. One direction is to focus on estate taxes. This direction is geared to discounting values and making gifts to the next generation. The other direction is focused on pursuing the maximum value for the seller. We suggest that the second direction is the better direction. Using this technique we can usually bridge the gap between what the seller thinks the practice is worth and what the buyer thinks they can pay.

In cases where the business in its current condition won’t generate sufficient proceeds to meet the seller’s needs, we can work with the seller and their CPA to develop a business plan with a goal to increase the value of the business.

We can provide a complimentary initial consultation to discuss potential solutions to the succession problems that you may be facing.

Contact us today.