High Points News And Information

Children Series: Part 3- Leveraging the Stock Bonus Plan

A business owner who is primarily concerned with transferring ownership with minimal tax consequences and who has sufficient personal financial resources so that receiving payment for the ownership interest being transferred is not essential may be able to efficiently transfer ownership using a stock bonus. This technique can offer some interesting tax and other advantages.

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Children Series: Part 2- “Oldco/Newco” Technique for Family Business Transfers

The most common use of the “Oldco/Newco” concept is in family business transfers. In the family run business scenario, “Oldco/Newco” may work well if the situation does not lend itself to gifting, either outright or indirectly, by using a Grantor Retained Annuity Trust (GRAT). GRATs do not work effectively to transfer ownership interests when there is substantial value, but the business is not growing in value or does not have significant income. Lifetime gifting without using some type of a split interest trust, such as a GRAT or an Intentionally Defective Grantor Trust (IDGT), can quickly exhaust available gift tax exemptions and create unwanted taxation.

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Selling to Insiders Series: Part 1- Elements of the Plan

Today we discuss the essential elements of a plan owners use to transfer a business to insiders (with the help of skilled advisors) that keeps 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.Element 1: Time.A transfer to insiders takes time: time to plan, time to implement and to pay the departing owner. Typically the more time owners take to transfer the company, the less risk they incur and more money they receive from the new owners.For that reason, the first question an owner must answer is: Am I willing to take time (typically three to eight years) to execute and complete an insider transfer (while maintaining control)? If the answer is no, then it is probably best to consider other exit paths.Element 2: Defined Owner Objectives.If owners are willing to devote the time necessary for this exit strategy, they also must define and or quantify their objectives. These may include:•    Financial security and independence;•    Departure/retirement by a chosen date;•    Keeping […]

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Six Estate Planning Questions for Business Owners

James Keefe sat nervously in his Exit Planning Advisor’s office. Until the day before, he had been president of Keefe Automotive Sales, one of the region’s largest new car dealerships. Now he was out of a job and felt he was a victim. Naturally, his first thought was to sue those responsible for his misfortune. The targets of his wrath were his younger sister and his mother. They had forced him out of the business.

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Key Employees Series: Part 3- Phantom Stock Plan: The Stock Plan That Isn’t

When an owner decides to financially motivate a key employee (or management in general), his first question should be, “Can this employee increase the value of my business in a measurable way?”If the employee in question is a sales manager and the answer yes, then the owner designs an incentive plan to motivate the sales manager to behave in a way that fosters an increase in business value. This may seem elemental, but it is not. Too often we see stock awarded to a sales manager when a cash-based plan directed at increasing sales is not only more effective but also more appreciated.Let’s look at how one owner solved the problem of matching the incentive to his desired result.During an annual performance review, Tom Sugar’s Chief Operating Officer expressed an interest in owning part of the company. Tom was really not interested in taking on a co-owner because he eventually wanted to transfer his company to his daughter. He didn’t want to sell or bonus stock but he didn’t want to lose his key employee. Tom was at an impasse. His CPA had told him that it rarely made sense to mix ownership among family and employees. On the other hand, Tom’s COO wanted […]

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Key Employees Series: Part 2- Incentive Plans

Experts and laymen agree that one constant of successful companies is a stable, motivated management team. This quality not only contributes to corporate success, it is also key to the business owner’s successful business exit.Should you decide to sell your business to a third party, you’ll discover that potential buyers place significant value on the strength of your management team—if that management team can be expected to remain after you have left the business. Similarly, if you contemplate selling the business to family (or to employees), the likelihood of being paid for the business after you’ve left can be entirely dependent on the strength of your remaining management team.In short, capable management remaining with the company can be the key to getting top dollar for your business. Without such management your exit may be more difficult.One of the many factors involved in creating, motivating and keeping good management is the creation of a properly designed incentive plan for key employees. To be successful, an incentive plan must motivate the management team to increase the value of the company in a measurable way. Only by increasing company value do employees receive the incentive (ownership or cash).Successful plans share four basic elements:First, the plan […]

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Key Employees Series: Part 1- Handcuffing Key Employees To Your Company

There are four characteristics of a successful Employee Incentive Plan. Namely, such plans should:Be specific, not arbitrary, and be in writing;Be tied to performance standards;Make substantial bonuses; andHandcuff the key employee to the business.In this issue we focus on the last characteristic; handcuffing the key employees to the business. The goal of the handcuff is to keep the employee with the company the day after and even years after the bonus is awarded. To help achieve this goal, owners and their advisors typically incorporate several techniques into a stock purchase or non-qualified deferred compensation plan.Vesting ScheduleFirst, a vesting schedule handcuffs employees to the company for a time period necessary to become entitled to the bonus awarded. I prefer a continual or rolling vesting schedule in which a single vesting schedule is applied separately to each year’s contribution. Using this schedule, an employee is handcuffed to the company for a long period of time because the key employee is never fully vested in the most recent contribution.Let’s assume that a lump sum award is assigned to an employee: one-half of which is given immediately and the other half subject to a five-year vesting schedule. Only in the final year is the […]

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Children Series: Part 1-Being Fair to All Children

Most parents have a natural inclination to distribute every asset equally to all children. The thought of giving one asset, and very likely the most valuable asset, to one child is considered unequal and, therefore, unfair to the other children.Yet, upon closer examination, leaving the business entirely to the business-active child (BAC) and making an equitable distribution of the balance of family assets to the inactive children (and perhaps to the BAC as well) is the fairest plan of all.”Fairness” in this context is usually a judgment parents make about what they think is fair to the children. What it overlooks is what the children deem to be fair to each of them. This perspective is all too often missing in family transition planning. To determine what is fair, assume the point of view of the business-active child and then that of the inactive child.Let’s look at why the business-active child might well resent having a co-owner sibling who is inactive in the business. Perhaps one of these reasons applies:It is the efforts of the business-active child to increase the value of the business that should be rewarded. You probably offered all of your children an equal opportunity to participate in the business and become owners. Yet, only one child […]

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Selling to Insiders Series: Part 2- Time is Essential in the Transfer

On the topic of transfer to insiders, we identify a number of elements that are part of the well-designed transfer to insiders. The first element we identify is the qualifier: Time.We suggest that the first question an owner considering a transfer to insiders ask is: Am I willing to take time (typically 3-8 years) to execute and complete an insider transfer? If the answer is no, then this type of exit is off the table.Transfers to insiders take time: time to plan and, most critically, time to implement. The good news is that in the typical case, the more time owners take to transfer the company, the less risk they incur and more money they receive from the new owners.Time to PlanAdvisors trained in Exit Planning know how to design successful transfers to insiders. If you call your advisor today, it could take as few as 60 to 90 days to create your plan to exit via a transfer to insiders. Those days are vital and necessary, but just the beginning.Time to ImplementThe lion’s share of the time needed for an insider transfer is spent implementing that transfer. During this three- to eight-year period, owners work to build the value […]

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Random Quote

Intentional living is any lifestyle based on an individual or group’s conscious attempts to live according to their values and beliefs. These can include lifestyles based on religious or ethical values, as well as coaching, personal transformation, and leadership training