New York Trusts & Estates

Business Value Battles in New City, New York

     The buyers and the sellers couldn’t agree on how much the company was worth.

A business is essentially an asset, but assigning a value to this type of asset tends to be very complex. If your retirement plan (and maybe your estate plan for your heirs) relies upon the business, do you know what your business is truly worth?

For a sobering problem many business owners end up facing when it comes to valuing their business, be sure to read a recent article in Forbes titled “Is Your Business Worth As Much As You Think? Many Aren't.”

At the core of the article is an interpretation of findings recently released by Pepperdine University in its 2014 Capital Markets Report. The key finding: buyers and sellers of businesses cannot agree on how much they are worth. Instead of negotiating back and forth to an eventual middle ground value, about 1 in 3 engagements fell through without any sale at all.

Now, keep in mind that it is always in the nature of high-pressure deals to come to such divisive and decisive ends. However, all the same there is a lesson to learn when so much is at stake.

What is your business worth and how do you prove it? How do you approach the sale and how do you structure your assets thereafter? This is a complex transaction. Putting it into the proper context and value is essential both in the beginning and the end of the process.

For more information on Small Business, Business Sale, Family Business, click on my website.

 

Reference: Forbes (March 2, 2014) “Is Your Business Worth As Much As You Think? Many Aren't”

 

 

Selling The Business? Avoid Post-Sale Battles in New City, New York!

Figure you and your lawyer will negotiate around all those post-closing efforts to chisel you out of a fat chunk of what you spent decades building? Think again.

If you and your family are considering the sale of the family business, and maybe considering an actual offer on the table, there is some business thinking that should enter the mix. This is especially true when it is your exit from the business.

Consider the warning alarm sounded by Forbes in a recent article titled “You've Finally Sold Your Business: Now The Ugly Negotiations Really Begin.”

It is in the interests of most sellers to make the price of the business dependent upon its future success. Consequently, there is some money upfront with a promise for full payment upon full performance. Sometimes, the idea is just to stagger full payments for the sake of financing.

Plans like these can give both buyer and seller the best of both worlds, or it can mean a world of litigation when there is a disagreement or things go wrong. Remember, when planning for the sale of the family business, it really does matter just how you sell the business and it pays to be aware of the issues in advance. Read the original article for a number of common scenarios.

Finally, do not forget that the family business is likely an important part of your estate, too. More often than not, the family business is your estate. If that is the case, then be mindful to structure the sale in accordance with the family needs.

For more information about Small Business, Family Business, Business Sale or Litigation visit my website.

 

Reference: Forbes (February 21, 2014) “You've Finally Sold Your Business: Now The Ugly Negotiations Really Begin”

Business Succession Through Employees in White Plains, New York

The 1974 ESOP law and later amendments were designed to encourage employee ownership. Company founders who initially sell just part of their stake and stay on as CEO say the best news comes after the deal: employees start to act more like owners. Ideas formerly kept quiet start to bubble up. Costs, once resistant to reduction, come under control more easily.

Once you have decided to sell your business, the million-dollar question becomes: "to whom should you sell it?" If you have no successor in mind, have you considered your employees? As many have discovered over the years, there is much to be said for selling the business to the employees themselves in the form of an ESOP or “Employee Stock Ownership Plan.”

Much has been written on the topics of employee ownership and the ESOP transition before, but a recent Forbes article titled “The Better Exit Strategy: ESOPs Satisfy Business Owners And Preserve Their Legacy” is worth your read.

When there must be an exit from the business, whether a full exit from the business or simply a way to pull out much needed capital, the exit strategy means weighing the available options. To sell the business to a larger company may mean gutting the business to only those elements the buyer wants to keep. Likewise, venture capital means distilling the business to a profit-center to be used and sold for profit.

What if you have an established business with established and trustworthy employees – employees that might make good owners? Consider an ESOP. In fact, the ESOP allows the owners to sell and the employees to buy in a tidy package that helps everyone. Moreover, it preserves the business, and the legacy of the founders. The owners can even stay on as employees themselves and continue at the helm, if the deal is structured accordingly.

Indeed, an ESOP is not a strategy suited to everyone and every business. There are some cases where it went terribly wrong. Nevertheless, ESOPs are quite an intriguing and powerful option for a closely held business. Take a look at the original article and others like it to learn more.

For more information about Small Business, Business Sale, ESOP, Estate Planning or Succession Planning please visit my website.

 

Reference: Forbes (February 12, 2014) “The Better Exit Strategy: ESOPs Satisfy Business Owners And Preserve Their Legacy”

Preserving The Family Business in White Plains, New York

Family businesses account for much of this country’s domestic product and are core to the American Dream. Whether it is a century-old international automobile manufacturer or a group of local dry-cleaners, family involvement in the business is a common goal. Like anything worth keeping, it takes work to preserve.

A business is not merely a thing. No, a business is a mindset, an activity and, oftentimes, even a lifestyle. It can get complicated. If your legacy is the family business, then with great responsibility comes the need for equally careful planning, preparation and dialogue.

Because every business is different, as every family is different and every individual is unique, what is right for a family business is something to be figured out and understood. That said, businesses have been coming and going for generations. Some have transferred successfully and others less so. Consequently, there are some tried and true strategies to consider when planning for your own family business succession.

Whether your objective is a sale, windup or succession, Forbes has provided a practical roadmap in a recent article titled “Six Steps For Making Your Business A Family Legacy.”

Here are the six steps by heading alone:

1. Give the family a reason to continue the family business
2. Develop a management team
3. Structure a business succession plan
4. Fund the business succession plan
5. Wealth replacement for other family members
6. Have a successful business

So what is right for you, your family and your business? I recommend reading the original article and then consulting with your team of professional advisors. Your attorney, accountant, financial planner and insurance agent will each bring a valuable and unique skill set to the table.

 

For more information on  Estate Planning, Business Succession, Small Business or Family Business visit my website.

 

Reference: Forbes (February 3, 2014) “Six Steps For Making Your Business A Family Legacy”

Baby Boomer Heirs in White Plains, New York

They are relatively older, they are probably inheriting from financially conservative parents and they are dealing with deep emotional reactions.

Leaving behind or receiving an inheritance includes several planning points to ponder, including tax questions and legal questions. In addition to all the details, one must not forget the emotional aspects as well.

Indeed, the Boomers of today are experiencing an unprecedented period of wealth transfer. What does it mean for a Boomer to inherit these days? The New York Times approached the subject a short time ago in an article titled “When Boomers Inherit, Complications May Follow.”

We all know that the Baby Boomers are a unique generation in terms of demographics and healthcare, not to mention their relationship to the very history and spirit of the country since their arrival. But did you know that Boomers are in the process of receiving the greatest inheritance windfall in the history of the country? Indeed, and that inheritance is estimated at some $8.4 trillion spread across some 79 million Baby-Boomers.

Against this backdrop, what does inheriting mean? What do you do with an inheritance and how do you deal with having it?

While it is easy to think of an inheritance as nothing more than money, it seems to mean something far more depending on the individual inheritor. Some may receive it as a gift to be honored, some sense spite in it, and others are quick to spend it away. The original article collects a number of voices from diverse viewpoints along the inheritance spectrum.

If you are inheriting, consider pausing for a moment now to think about what that may mean to you. For that matter, this personal reflection can guide you through your own estate planning. How are you leaving an inheritance for your heirs? Why are you leaving it as you are?

 

For more information about Estate Planning and Inheritance, please visit my website.

Reference: The New York Times (February 10, 2014) “When Boomers Inherit, Complications May Follow”

SMALL BUSINESS / GRANTS

Grants aren't for only nonprofits. Small businesses can sometimes get their hands on that money too—and get a big boost in the process. 

If you’re getting a new enterprise off the ground or trying to expand your small business, finding capital may be high on your list of priorities. Unfortunately, many traditional sources of business capital have dried up in today’s economy. So, try thinking “outside the box,” and consider applying for a government grant. As a recent Wall Street Journal article points out, grants are not just for non-profits, and your business might qualify.

Federal and state governments offer grant money to businesses when they want to get things done for the public good. So, if you are working in a field that government considers “promoting the public good,” you may be able to qualify for a grant. Some of those business areas include energy efficiency, environmental technology, biotechnology, health care and information technology.

State and local level grants may be available for a wider range of business purposes, however, since local governments tend to be more concerned with encouraging commerce. On the more local levels, grant money could be available for industries such as tourism or even child care. Do some research: scour government websites, particularly www.grants.gov. You also can sign up for e-newsletters alerting you to grant opportunities. State and local governments also publicize grant information online, so make Google your friend.

If you think you’ve found something promising, it’s worth contacting the grant manager directly to see if your business is a possible fit before proceeding. Generally, they will let you know whether you are “barking up the wrong tree.”

There are professional grant writers who can help write and edit your grant application. Some grant writers charge a flat fee, while others bill by the hour. If you decide to use a professional grant writer, remember you will have to pay them whether your grant is approved or not, and their fees could go into the thousands of dollars. Beware of scammers, too, especially anyone who guarantees you “free money,” or promises to find you a grant if you buy something from them. Also, don’t bother with anyone who demands a cut of any grant you win. 

Reference: The Wall Street Journal Online (June 13, 2011) “Ask For Public Money, And You Shall Receive”

SMALL BUSINESS / FAMILY LOANS / GIFTS

 With unemployment still close to double digits and entry-level jobs in short supply, it's tempting for parents of college graduates—and other struggling twenty-somethings—to try to help their adult children start businesses.

 If you have an adult child asking you for investment capital to launch a new business, you may be strongly tempted to comply. It might be a good investment, or it might not. Either way, a recent article in The Wall Street Journal points out several things you can do to preserve both your capital and your relationship.

• Understand that most start-up businesses fail within the first few years, so there is a good chance that your “investment” will not pay off, or if it does, it may take longer than you expected. Decide now whether you are making a gift with no expectation of getting your money back, an investment for an equity position, or a loan at a favorable interest rate. There is no single right answer, but make sure everyone is on the same page about the nature of your investment. Also, be sure to consult your attorney about any gift- and estate-tax implications.
• Get it in writing. Families often “forget” this important aspect of any financial deal, but it’s important for both sides to put the terms in writing to prevent misunderstandings down the road. Remember, if you want to preserve both your money and your relationship, a written agreement is your friend.
• Treat your child like an adult. Don’t become a nagging parent, but rather try to foster an environment that encourages your child to come to you with open, honest communication. And allow your adult child to run the business without unnecessary interference.
• Give advice as needed. It’s a fair bet that your child has never run a business before, in fact he or she may not have much business experience at all. Consider taking an advisory role, and don’t be surprised or indignant of your first-time CEO makes a few rookie mistakes.
• Examine your own motives. Make sure you are providing funds to help the fledgling business, and that you are not trying to buy your kids’ love.

Reference: The Wall Street Journal Online (June 7, 2011): For You, Graduate, Some Start-Up Capital

Selling Your Business - Seller's Remorse

If you’re a business owner, you may be enticed by the idea of selling your business and walking away with the cash … but chances are you’ll have a hard time cutting ties with the business you built.

A recent article on Forbes.com tells the story of a business owner of 25 years who finally decided to sell his business, since his sons had no interest in running it. He spent hundreds of thousands of dollars and a year of his time prepping to sell, but walked away at the last minute. Forbes calls this “seller’s remorse,” and it’s a fairly common ailment of successful entrepreneurs.

According to Forbes, the problems entrepreneurs suffer when selling their businesses stem primarily from what psychologists call “locus of control issues.” In essence, someone who has, for most of their career, initiated all of the action, finds themselves in the uncomfortable position of being passive and reactive to the strategies and directives of others.

Authentic entrepreneurs are unique creatures, business geniuses that defy convention by thinking less about wealth and rewards than challenge, wining and making a mark on society. If you are a business owner considering selling your business, you may be well-advised to come to terms with the idea before you dive into the process. You will be ceding control of your business, in exchange for cash. Best to wrap your mind around that issue sooner rather than later.

 

Gifting Real Estate - Take Advantage of the New Gift Tax Law

New tax rules make big gifts to family members popular this year. If you made a gift of real estate (or are considering making one) be warned – the IRS is scrutinizing land-transfer records looking for folks who may have made a reporting error.

As The Wall Street Journal reports, the IRS has begun requesting state land-transfer records and checking them against reports of the past few years to find if there are any discrepancies. Congress raised the limit on how much a person can give in a lifetime to $5 million without having to pay gift tax. Still, any time you give one person a gift of more than $13,000, you are supposed to let the IRS know by filing a Form 709. Land transfers can easily exceed the $13,000 limit, which could explain why the IRS is so interested in examining them.

States that have already handed over information on gift-like transactions include Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington and Wisconsin, generating several hundred cases for review, with 12 cases resulting in taxes or penalties. In fact, according to IRS documents, the failure-to-report rate is “extremely high.”

Taxpayers need to be aware that there is no special exception to the rules when making a transfer to a family member. If the property is valued at more than $13,000, a gift-tax return must be filed. Even if the transfer falls within the lifetime exemption amount – currently $5 million – it must be reported.

Passing Your Business to Your Heirs - Now May Be the Best Time.

Now is a fantastic time to give shares of a business to family members.

 

According to most tax experts, now is a fantastic time to give shares of a business to family members. As you may well know (if you follow this blog) 2011 and 2012 are have unique in terms of estate and gift tax planning. As one tax attorney was quoted in a recent New York Times article, “We are in the prime transfer tax situation.”

However, having said that, there’s an old saying about not letting the tax tail wag the dog. While now may be the prime opportunity, tax-wise, to give away share of the family business to the next generation – a bigger question is whether you should give away the family business at all. While it may seem like both a loving gesture and a way to ensure the longevity of the enterprise, gifting can be the worst possible option for both the business and the family that owns it.

Tom Deans, author of Every Family’s Business, is a critic of what he calls “the longevity myth” that surrounds family-owned businesses. He says that giving away a business is both corrosive and dangerous. His advice? Your family business ought to be sold – whether to the next generation or to an outside buyer.

 

“It’s not about denying the next generation anything,” Mr. Deans said. Rather it’s about preserving what he considers to be the family’s true legacy — not the business itself but the two most precious things that the business creates: substantial personal wealth and the values required to nurture the next generation of entrepreneurs.

 

            In today’s tough economic times, it may make sense to heed Mr. Deans’ advice. For most small business owners, their business is their estate. You are well-advised to discuss your situation with a qualified professional before deciding whether to gift your family business to the next generation, sell it to them through some type of structured arrangement, or sell it outright to a third party.