Facts on Exit Planning

  • Almost 50% have no plan to transfer ownership, management and control, and the percentage is even higher for companies that have been in business for less than 20 years
  • Nearly 60% of closely held companies have failed to gauge the potential tax exposure upon a transfer of ownership
  • 25% are due to change hands within the next 5 years
  • About 90% of owners of closely held companies would like to transfer ownership, management and control of their companies to family or non-family key employees. Less than 50% manage to do so
  • Only 33% have defined criteria for hiring and promoting family members who want to take an active role in the business
  • Over 33% of closely held companies have no procedures in place for dealing with disputes between family member owners

1The statistics provided above have been derived from a variety of surveys of closely held business owners including: the PricewaterhouseCoopers 2007-2008 survey of nearly 1,500 closely held companies; the 2007 survey of 800 closely held businesses by the University of Connecticut School of Business Administration Survey; and the 2003 Arthur Andersen/Mass Mutual American Family Business Survey.

Exit News

Case Study: “Fair does not Mean Equal” PDF Print E-mail
couple-pondering-business-exit

Situation and Objectives:

 
  • Sharon (63) and Tom (67) are husband and wife co-owners and officers of a specialty electronic component manufacturing company with $13 million in sales.
  • Sharon and Tom both receive salaries from the company as well as rent for the lease of 2 business real estate properties, which they own personally. They also own 4 other parcels of valuable real estate: their primary residence, a vacation home and 2 local mixed use warehouse/office properties.
  • They have 3 married grown children: Alex, Barb and Charlie. Alex is actively involved in the business. Barb just came back to work for the company after a several year stint with an unrelated business she co-founded with a couple college friends. Charlie works in the music industry.
  • Treating all their children fairly was an important concern.

Solution:

  • Sharon and Tom are now confident that they can safely leave the business while maintaining family harmony and financial security…
  • The company created a strategic vision and process for executing it, allowing the family to work together to set future direction, and protect Sharon’s and Tom’s legacy and business value.
  • By evaluating and developing the leadership and management skills of Alex and Barb (the children who are active in the business) and non-family key employees, the risk of failure was minimized and family stress reduced.
  • Sharon and Tom were able to transfer the business to Alex and Barb for the “lowest defensible value”, assuring that taxes would be minimized.
  • The process insured that Charlie (who was not active in the business) would be included through the use of non-business assets.
 
The case studies above, although based on real experiences with our clients, have been modified to protect confidentiality.
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