Many business owners have misconceptions about selling their company. I have learned these twelve common misconceptions from my 26 years of M&A (mergers and acquisitions) experience as: 1) Vice President of M&A for two large publicly held companies, 2) Managing Director of a nationwide M&A advisory firm and 3) now as President of TIGER Brokerage Group. Commonly the sale of the company is the biggest financial decision an owner makes. Consequently, a mistake made in selling the company can be very expensive but can be avoided.

Published: CSA Journal 29, December 2005

IMPORTANCE OF OWNERS HAVING A TRANSFER PLAN

By Edward W. Towers, CSA and CBI

CSA’s commonly counsel seniors on health, tax, financial planning, estate planning, investments, and insurance matters. One frequently ignored area is transfer planning (A.K.A. exit planning) for seniors who own companies. An exit plan considers the various alternatives for an owner to transfer ownership and puts in writing the desired plan (with a timetable) on how to turn over the company to the new owner. It is like an estate plan but it is for the company. By recommending the development of an exit plan for clients in need of one, a CSA can be of great service. The opportunity to be of help in this area is more beneficial, possibly more important than having a will. This situation occurs more frequently than most CSA’s realize.

Citizens over 55 years of age own thirty-one percent of businesses in the U.S. We estimate that only fifteen percent of company owners have exit plans. In portfolio management, personal financial planners advise paying attention to diversification across the various classes (e.g. stocks, bonds, cash, etc.). A study by Vanguard has shown that asset allocation is the most important factor in investing (more than the actual selection of individual stocks!). Although diversification receives the majority of the publicity, a business owner’s largest investment, his company, surprisingly is often ignored. Commonly, three quarters of an owner’s net worth are tied up in his company. Having so much equity tied up in one investment is very risky – especially for senior citizens. Furthermore, it is worse that most business owners don’t have any plan for transferring or exiting.