Business Continuity Instructions: Guiding Your Family, Even After Death

Business Continuity Instructions: Guiding Your Family, Even After Death

As owners approach their business exits, one topic that’s often overlooked is unexpected death or permanent incapacitation. One reason owners gloss over this topic is because it injects an uncontrollable element into a controlled process. Many successful business owners take pride in the control they have over guiding their businesses toward success, so the idea that all of that hard work can be dashed by death without warning is unsettling. But consider the following case study:

Bud Brown, an Exit Planning Advisor, woke up early on a Monday morning with great anticipation. He and one of his clients, Bruce Delany—a successful business owner and longtime friend—were preparing to receive an offer from a third-party buyer. As Bud finished tying his tie, his phone rang: It was Bruce’s wife, Dolores. He answered with a warm, “Good morning, Dolores. Excited about today?”

What Could Go Wrong When Transferring Ownership to Employees?

What Could Go Wrong When Transferring Ownership to Employees?

We often hear owners say they want to transfer their businesses to third-party buyers when they first encounter the concept of Exit Planning. However, we’ve observed that in many completed Exit Plans, owners actually choose to transfer their businesses to employees. Some reasons for this decision include employees knowing the culture and values of the business, a desire to keep the business with people the owner knows and trusts, and employees’ inherent desire and commitment to grow the business.

As owners start to consider options that include transferring to employees, they can forget to ask two important questions:

1.     Do the employees I want to succeed me even want my ownership?

2.     If so, how can I motivate each employee to stay and make the financial commitment?

Your love and enthusiasm for your company can cause you to skip these critical first questions. What may seem like a good fit to you can lead to chaos if the most important employees (often referred to as “key employees”) cannot, will not, or just don’t want to accept ownership. Fortunately, there are three things you can do to address this issue.

Avoiding Unwanted Surprises

Avoiding Unwanted Surprises

For some business owners, a third-party sale is their best option for a successful business exit. Third-party sales are popular because owners often believe they can get the most money from their businesses in as little time as possible from a third-party buyer. They might be right. But what they may not consider is how little control they have over their businesses, their schedules, and even their futures once the third-party sale process begins. Consider the following case study:

After 35 years of building a successful manufacturing company, which employed about 100 people, Lemont Lemieux was ready to retire. Always a do-it-yourselfer, Lemont had hired a business valuation specialist; found an interested buyer; assembled a deal team consisting of a business broker, deal attorney, and his company’s CPA; and, most importantly, told his wife, Trinity, about his intentions to sell to an outside buyer long before he began the process. Neither of their children had any interest in the business, and Lemont and Trinity were ready to travel.

For Business Exits, Being Inconsequential Is of Great Consequence

For Business Exits, Being Inconsequential Is of Great Consequence

It’s likely that few people, if any, have ever told you, “You need to make yourself less important,” regarding your business. But sophisticated buyers look for businesses that can operate without their owners. Unless your goal is to sell or transfer your business, and then stay with the business as a subordinate to assure a smooth transition, you’ll need to train a management staff that can run the business without you. This is the most important Value Driver you’ll install, and for many owners, it’s the hardest, because they aren’t prepared to expend the emotional and mental energy required to remove themselves from their businesses.

There are countless technical strategies to making yourself inconsequential to your business, many of which we’ve discussed in previous newsletters. But just as important as the technical aspects are the mental and emotional aspects, so let’s look at some of the common mental and emotional roadblocks you might face as you make yourself inconsequential.

Minimizing Threats to Business Value

Minimizing Threats to Business Value

Many owners and advisors talk about the importance of growing business value, and there are nearly unlimited options to help business owners do just that. But wouldn’t you agree that growing business value is pointless if you don’t know how to reduce the threats to that growth? As you prepare for an eventual exit from your business, there are several threats to business value that you need to be aware of:

· Key employees leaving the company and competing by taking customers, employees, and/or trade secrets.

· Key employees dying or otherwise leaving without a replacement.

· Data security breaches.

· Uninsured casualty loss.

· Fraud and embezzlement.

· Losses from high-risk operations.

· Any number of other economic, industry, or internal threats.

How to Increase Your Business’ Value Using Value Drivers

How to Increase Your Business’ Value Using Value Drivers

A fundamental aspect of a successful business exit is assuring that your business has enough value to allow you to exit with financial security. This, coupled with wisely invested non-business assets, gives you the best chance to pursue the Exit Path you want on the timeline you want. Obtaining a proper, professional business valuation is the first step in determining how much your company is worth, but what happens if the valuation shows that your business isn’t worth enough to allow you to exit your business with financial security? How can you increase your business’ value if everything that’s made it successful thus far isn’t enough?

The answer lies in installing Value Drivers.

An Estimate of Future Company Cash Flow

An Estimate of Future Company Cash Flow

Cash flow is one of the most important factors in a business exit. Today, we look at why securing a professional estimate of your company’s cash flow is crucial to the success of your Exit Plan. All buyers, whether an outside third party or an insider (family member, co-owner, or key employee), will use cash flow as a way of measuring or confirming the value of the companies they buy.

While there are many definitions of cash flow, the one that we often use is free cash flow. Free cash flow is the portion of the annual net cash flow from operating activities that remains available for discretionary purposes after the business has met its basic financial obligations. In this discussion, the “discretionary purpose” is the buyer’s purchase of or return on investment for the owner’s interest in the company.

Why Setting Goals Is Important, Even If They Change

Why Setting Goals Is Important, Even If They Change

Setting goals is critically important to owners who begin Exit Planning. Without goals, even the strongest processes fail, because they have no purpose to work toward. Your goals are what guide your process toward a successful exit, and without them, you’ll find yourself spinning your wheels in the mud of indecision.

While setting goals is the most important thing you do as you begin your business exit journey, it doesn’t mean that you have to know exactly where you’ll end up after you exit your business. Goals can and often must change to give you the best chance to exit your business on your terms. Business exits are rarely all-or-nothing propositions. Having the foresight to set actionable goals combined with the flexibility to change them when necessary gives you the freedom to pursue your vision of a successful business exit.

Let’s look at three reasons why setting goals is so important, even though they might change.

Protect Against the Pain of Exiting Your Business

Protect Against the Pain of Exiting Your Business

You know how things work in terms of starting and running a successful business. You’ve hired the right people, offered a useful product or service, and developed high-quality relationships with your customers and vendors. None of these things magically appeared out of thin air: You most likely followed a proven process, mixed in with your own creative problem solving, to build a successful business. The same adherence to process that applies to starting and running a successful business applies to a successful business exit.

Whether you’re looking to exit your business in 10 months, 10 years, or never, one fact governs them all: All business owners—even the hardest working, most dedicated workaholics—will exit their businesses someday. Whether by choice, death, or otherwise, you need to be able to answer the question, “What will happen to me, my business, and my family upon my business exit?” While this may seem like a heady, rhetorical question, the consequences of planning have real effects on the things you care about most. How can you address this question with a concrete, actionable answer?

Which Comes First? Estate Planning or Exit Planning?

Which Comes First? Estate Planning or Exit Planning?

A successful business Exit Plan achieves three important owner goals:

1.     Financial Security: The business sale or transfer provides the amount of income the owner and owner’s family need after the owner’s exit.

2.     The Right Person: The owner chooses his or her successor (children, key employees, co-owners, or a third party).

3.     Income Tax Minimization: The owner minimizes the amount of cash the government takes out of his or her pocket.

A successful estate plan achieves three important personal goals:

1.     Financial Security: For the decedent’s heirs.

2.     The Right Person: The decedent (rather than the state) chooses who receives his or her estate assets.

3.     Estate Tax Minimization: Reduces the government’s bite, leaving more funds for the decedent’s heirs.

Death and Taxes vs. Preserving Wealth: The Final Exit Planning Contest

Death and Taxes vs. Preserving Wealth: The Final Exit Planning Contest

Full disclosure: Wealth preservation planning can’t help any of us cheat death, but it can help business owners avoid taxes and achieve financial security.

The ideal Exit Plan (one that provides the business exit you desire) includes a strategy to help you preserve your hard-earned wealth from unnecessary taxation when it is transferred to your family. However, to preserve wealth, business owners must take steps before they actually have wealth. In other words, to realize all of the potential benefits of various wealth preservation techniques, owners must make plans before they convert the value of their businesses to cash.

The foundation for wealth preservation planning is found in the answers to two of the questions in Step One of The BEI Seven Step Exit Planning Process™:

1.     How much wealth do you want when you exit your company? (Additionally, for parents, how much wealth do you want your children to have?)

2.     How long before you leave your company?

Business Continuity Planning for Co-Owners

Business Continuity Planning for Co-Owners

Imagine that on the eve of your wedding, you make a plan to divorce your spouse, on friendly terms, in about 15 years. During those 15 years, you agree to work diligently and successfully to build a business. On the preordained day that your marriage ends, you announce that you are willing to give your soon-to-be ex-spouse one-half of your company’s business value in cash. Additionally, you let your ex-spouse value your company, because those are the terms of the agreement the two of you signed a year after you were married.

Though this scenario may seem ridiculous, you may have done something quite similar in your business with your co-owners.

Maintain Control, Save on Taxes, and Set Fair Value Using a Buy-Sell Agreement

Maintain Control, Save on Taxes, and Set Fair Value Using a Buy-Sell Agreement

There is a strong case for creating a Buy-Sell Agreement for co-owned businesses. If owners agree about how to appraise business value and set the terms of payment in advance of any transfer event, they can avoid the heated and often damaging negotiations that can occur when one owner leaves the company.

In this issue, we continue making our case for Buy-Sell Agreements by outlining several other advantages of a well-drafted and recently reviewed Buy-Sell Agreement.

Preparing for the Worst: Business-Continuity Planning for Sole Owners

Preparing for the Worst: Business-Continuity Planning for Sole Owners

Contemplating one’s own demise can be challenging but is paramount to sole owners and their businesses. Consider the fictional Harry Withers, the 54-year-old owner of Withering Hikes, a chain of seven retail apparel stores for outdoor enthusiasts on the Western Slope of the Rocky Mountains. One day, Harry disappeared while scouting new hiking trails.

After several months of fruitless searching, Harry’s family opened probate proceedings only to find that Harry’s once-thriving business also had disappeared. However, Withering Hikes’s disappearance was far more typical than Harry’s. Because Harry had dreamed of selling his company at 60, he had given little thought to what would happen to his business if something happened to him. Thus, Withering Hikes died of all-too-common causes—human error and neglect—setting off a chain reaction of ever-worsening consequences for Harry’s family and business:

The Essential Business Agreement: A Business-Continuity Agreement Among Owners

The Essential Business Agreement: A Business-Continuity Agreement Among Owners

If you co-own your business, the business-continuity agreement (or buy-sell agreement) is one of the most important documents that you will sign. If you have a buy-sell agreement that is out-of-date, not reviewed, or focuses on the wrong issues, it may be worse than having no agreement at all.

Let’s start with a hypothetical case study that illustrates the importance of drafting a buy-sell agreement that anticipates and provides for all transfer events (lifetime transfers, disability, or death).

Avoiding Disasters in Insider Transfers

Avoiding Disasters in Insider Transfers

Steve Smith was no different than millions of other baby-boomer business owners in that the thought of leaving his business was never far from his mind, no matter how far away his exit might have been. He daydreamed about transferring the business to his oldest daughter and perhaps to a member of his management team, yet he couldn’t gauge their passion for owning a business and hadn’t tested their management skills.

And, of course, they had no money.

Steve’s company was his economic and financial lifeline. Without its income, his ability to use the business to accumulate wealth, the ability to sell his interest to a buyer who had cash, and a plan, Steve’s wishes would never come true. To Steve, it was obvious that if he ever wanted to exit his business in style, he needed to wait for a white-knight buyer to appear on his doorstep bearing saddlebags of cash. So, Steve did what many other owners in his position do: nothing.

Elements of a Plan to Sell to Insiders

Elements of a Plan to Sell to Insiders

Today, we discuss the essential elements of a plan owners use to transfer a business to insiders that keep the owner in control until he or she is paid the sale price. If you suspect that the children, key employees, or co-owners you would pick to succeed you do not have the funds to cash you out, consider the following 10 elements that make insider transfers successful.

Are You and Your Company Candidates for a Third Party Sale?

Are You and Your Company Candidates for a Third Party Sale?

If you think that planning for the biggest financial event of your life is a good idea and prefer an approach other than “wait and see,” what can you do to make sure your company is ready to sell when you decide the time is right?

Step One: Define your Exit Objectives:

· How much cash you need to fund a financially secure post-exit life.

· When you want to leave.

· Which kind of buyer you prefer (third party or insider).

Step Two: Convert your impression of what your company is worth into an objective valuation.

Step Three: Build needed value into your company by making yourself an Inconsequential Owner.

Step Four: Sale to a third party.

Sticking a Toe (or Two) in the Exit Planning Pool

Sticking a Toe (or Two) in the Exit Planning Pool

In this issue, we attempt to dismantle the most common objections owners have to undertaking the planning necessary to exit their companies successfully. Excuses to avoid Exit Planning include the following:

1.     The business isn’t worth enough to meet my financial needs. When it is, I’ll think about leaving.

2.     I will be required to work for a new owner for years.

3.     I don’t need to plan. When the business is ready, a buyer will find me.

4.     This business is my life! I can’t imagine my life without it!

Assuming we are successful in persuading you that Exit Planning not only helps your business while you are in it but also is the best way to leave the company to the successor you choose, on the date you choose, and for the amount of cash you want, you might ask, “How do I, as an owner, jump into Exit Planning?”

Building Value is the Win-Win-Win of Exit Planning

Building Value is the Win-Win-Win of Exit Planning

In all likelihood, you are absolutely critical to the success of your business. Without you, there is no business.


We want to fix that.


With a little luck and a lot of hard work, we can help you become an Inconsequential Owner.


At some level, all owners understand that they will someday leave the businesses they have created. Let’s assume for a moment that you leave your business permanently tomorrow. If you are an Inconsequential Owner, your exit will have no impact on the business, and that’s good for business value. Buyers pay for business value, not for the departing owner.
If you constitute a significant part of your company’s value (i.e., you are a Consequential Owner) and you have left the scene, there likely will be few buyers interested in your company, and those who are interested likely will pay significantly less than they would had you been an Inconsequential Owner.