| Successful Business Ownership Transitions Require Planning and Time to Succeed |
One of Berntson Porter's valuation clients created an ownership transition plan nine years ago. The two founding owners desired to sell the business over time to a key employee management group. Both were in their mid-40s when they started the plan, and wanted the flexibility to complete the transition out of their business between ages 55 and 60.
One critical plan objective was to update the buy-sell agreement. The new agreement included a provision requiring a formal business valuation every two years to set the price for transfers of shares during each interim period. The agreement called for independent appraisals using the fair market value standard applied to minority interests. This is a frequently used and well-understood standard in the business community and the IRS. The owners hired Berntson Porter to prepare the valuations.
Result: The transition plan has been quite successful in motivating and retaining a core key management group. It also enabled the owners to transfer executive responsibilities to key owner-managers more easily. As a result, the owners by choice have become much less active in day-to-day activities. They are working fewer hours, they are involved in the strategic activities they enjoy, and they make as much or more money than they did when they owned 100%. They are also creating a self-sustaining organization and legacy to help ensure the future success of the company. These are all fruits of long-term planning.
The founding owners and the owner-management team have received well-prepared and timely business valuation reports to track the stock value during both good and bad times. The valuations provided ownership with the ability to repurchase shares when a key employee left the company a few years ago, as well as provide a purchase price when the company later hired a new key employee. Both the purchase and sale were completed with minimal negotiation over price and terms because the buy-sell set the terms and the valuation set price during interim periods.
Berntson Porter & Company's Business Transition and Valuation Services group specializes in business owner exit planning and implementation, merger and acquisition transaction advice, and business valuations for a variety of purposes. Please call Allan Vander Hamm at 425. 289.7613 to learn more. |
