If you are like most owners, you are critical to the success of your business. Without you, there is no business.
We want to change that.
Instead of being the hub of your business, we’d like to help you become an Incidental Owner. Allow us to explain.
The Beauty of Incidental Owners
Let’s assume for a moment that tomorrow you leave your business permanently. If you were an Incidental Owner, your exit would have no impact on your business, and consequently on its value, because buyers pay for businesses—not for their departing owners.
If, on the other hand, your business depends on you for its success, you constitute a significant part of your company’s value, and you are an Essential Owner. In that case, if you want to sell your business, few buyers will likely express interest, and those who do will likely bring significantly less cash to the transaction than they would if you were an Incidental Owner.
Being an Incidental Owner benefits you, your family and even your company.
Becoming an Incidental Owner
It is possible to transform yourself into an Incidental Owner through Owner-Based Planning (OBP). Through the OBP process, you will be able to answer this question:
What has to happen in my business by the time I leave it to:
- Enable me (and my family) to achieve financial security?
- Allow me to move forward with the rest of my life, confident that I have been a good steward of the business?
Making it Happen
For most owners, one of the first and most important activities that “has to happen” after figuring out where you are (the current value of your business and other assets) and where you want to go (your financial and personal exit objectives) is to create and sustain business value.
As Owner-Based Planning Advisors, we have articles, books and white papers that describe actions related to 1) value building, 2) value protection and 3) minimizing taxes. We’ll share details about these three categories with you over the next few months. In this article, we introduce you with some of the highlights.
Building Value
Our first question is: “What do you,as the owner, need to do to create a company that can successfully operatewithout you?” Answers include:
- How to develop a market focus.
- How to create a top management team.
- How to choose and implement proper financial policies and operating systems.
Our second question is: “What characteristics of a business do buyers pay handsomely for?” We call these characteristics “Value Drivers” and among them are:
- Steady and improving cash flow.
- A stable, motivated management team.
- Operating systems that improve the sustainability of cash flows.
- A solid, diverse customer base.
- A realistic growth strategy.
- Financial foresight and effective financial controls
If you would like to learn more about value drivers, please contact us and we’ll send you a complimentary copy of our white paperValue Drivers.
Protecting Value
Business value must be protected from both internal and external threats and ideally before rather than when they occur. We’ll discuss strategies we use to avoid threats such as protecting propriety information and trade secrets; and preventing departing employees from harming a business by taking customers, employees, and/or business relationships. We’ll also cover how to anticipate and evaluate external threats.
Minimizing Current and Future Income Taxes
Cash flow is the lifeblood of every business, and therefore its best indicator of value. We’ll describe techniques that effectively protect current cash flow from unnecessary income taxation—legally, of course—since income taxes on the sale of your business interest can range from zero to over fifty percent. Expect to see articles that discuss the advantages and disadvantages of tax-minimizing techniques.
As you read this and subsequent articles, we hope you’ll begin to appreciate that, while growing and preserving value is essential, it need not be daunting. Indeed, if you approach the task systematically, it requires only small chunks of time and effort in return for a potentially enormous payoff.
We are here to Help!
We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their families. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Business Enterprise Institute, Inc. is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
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Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
