Business Broker Strategy As Part of Exit Plan

[Vigilante]

What would happen to your family if you got hit by a bus on the way home from work tonight? If you died today, how would your survivors cope financially?

These are the questions we have been wrestling with over the past few weeks.

Step 1. Insurance. I have enough life insurance that my wife would be OK permanently. She wouldn't have to change much.

Step 2. Business transition.

My wife is not going to step in and run the business long term. While she needs to be able to do that short term to keep the wheels on the car, in essence what it would become on that day is a fire sale. Someone would be able to acquire the company for a low multiple, as her "job" at that point is to sell the company as quickly as possible for the maximum amount possible.

Enter a business broker from stage left.

However, the time for that structure and transition to be game planned out is NOW, not then for several reasons.

1. Your survivors might not know the details of the business
2. Your survivors might not know how to engage a business broker
3. Your survivors will be grieving (hopefully, right?)
4. You might today not be aware of achilles heels in the business strategy or structure

So, I am forging a relationship with a business broker NOW, to get that transitional strategy set up. It costs nothing.

Best case scenario is the business broker gets excited about your business, and finds you a buyer NOW (although that is not the goal). Keep in mind that he/she is motivated by event based commissions. They only get PAID when they sell your company. So, in the process of setting up the catastrophic exit plan, they might accelerate the process and find someone to take you out now.

Worst case scenario is you create a turn key "do this if I were to die" game plan for your survivors. There will be a structure in place, a pre-negotiated exit strategy, and an emergency button to press on that day that links directly to your exit plan advisor.

There's no reason NOT to do this. It can't hurt, and in my case I owe it to the people coming behind me to have someone knowledgable about how to take an unexpected loss and turn it into a methodical business exit.

I will let you know in this thread if I discover anything of value from building a relationship with a local business broker.

From an article in Inc.com, here are five questions to ask when selecting a business broker :

1. background and credentials

2. do they do their homework?

3. how do they promote your sale?

4. what is their buyer screening process?

5. how many listings do they currently have

and I would add :

6. what similar businesses have they sold previously

7. what is their core area of expertise (what sector)

8. get the contact information from the last three businesses they sold

9. Ask them what questions THEY would ask a business broker.

http://www.inc.com/bob-house/5-questions-to-ask-when-choosing-a-business-broker.html

 

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[Iwokeup]

Fantastic idea. Something that I think about myself.

On a related note, perhaps we can discuss amounts of level term life insurance in another thread?

 

[Bellini]

Enter a business broker from stage left.

This is a great idea.

When my father and grandfather died within a year of each other, there was nothing in place like what you laid out. Consequently it left the family devastated in just about every way. Just like you mentioned, the family business was auctioned off for pennies because no one knew what do to. Very sad.

Thanks for the reminder.

 

[Vigilante]

Fantastic idea. Something that I think about myself.

On a related note, perhaps we can discuss amounts of level term life insurance in another thread?

Life insurance passes tax free.

I have enough life insurance that my wife would not need to work ever again, maintain her lifestyle, and take care of the kids needs.

That's why she could sell the business off in a fire sale.

For us, that's a seven figure payout on the term insurance. Insurance is pretty cheap these days.

The other thing to consider is business sustainability.

During the 48 hours following demise, in the midst of the grief there are certain things that my wife would have to do REGARDLESS OF THE GRIEF with the business in order to not create a catastrophe business-wise, even in the hours following my untimely death.

So, your survivors need to be coached NOW on what they would have to do THEN in order to preserve the business.

It's a crass reality that venues like Amazon do not have a death policy exemption. If Amazon is part of your business platform, than a catastrophic survival plan with step by step instructions must also be part of your survivors instructions.

Literally there are things that MUST be done through the tears on that day for the business to not get wrecked in the process. It needs to be preserved so that the value is preserved.

Hell --- there is probably a business in this concept itself. Survivor consulting and account maintenance services.

 

[jon.a]

https://www.thefastlaneforum.com/community/threads/inheriting-a-mess-sucks.53838/

 

[Vigilante]

Paging @Esquire for a few comments on wills, family trusts, etc...

 

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[Vigilante]

So after a brief meeting with the broker, here's the down and dirty conclusion.

1. I need to pay a bookkeeper to do more than I am doing
2. They need to recreate three years worth of P&L's showing the progression of the business. To a degree, they can use tax returns for that.
3. It will create three plans :
3A a catastrophic short term plan
3B a long term plan for sale of the company and
3C an interum plan (a buyer emerges in the next 6 months)

It will be interesting to see how he follows up. His company is a HUGE company, that does tons of large dollar mergers and acquisitions. This might be too small for them to care. We'll see.

Question to investigate prior to meeting with a business broker : What is the average size of deals their company does?

This guy's current project (assigned to him, as a partner in this huge company) is a $40m merger. Someone working on a $40m merger might not be the best broker to handle a small time asset/company sale.

 

[Yoda]

On a related note, perhaps we can discuss amounts of level term life insurance in another thread?

It's not complicated; keep it simple.

• How much would it cost to replace you inside your business?
• How much would it cost to replace you to your family?

That's really it.

In regards to business:

1. If you're a sole proprietor, you'll need to have enough of a policy to A.) hire someone to keep the wheels on, or B.) replace the income your spouse would lose if they left their job and kept your business' wheels on, as @Vigilante mentions.
2. If you have a business partner, consider a buy/sell type of agreement where you can setup the insurance policy to pay your spouse the current market value of your half.
3. Consider the expenses to close your doors, taxes, and other fees and penalties which might occur from not fulfilling orders, terminating a lease, etc.

In regards to personal:

1. Multiply your income by a standard multiple (usually a flat 10x), and add any additional transferable debts.
2. Subtract liquid assets.
3. Consider estate taxes if your estate is over $5.125M, inheritance or other taxes if they are taxable, and any charities you might want to leave a small chunk to, if that's your thing.

Of course, always consult legal and tax professionals, and make sure your beneficiaries and contact information are updated, at minimum, annually.

TIPS:

• Pay Annually. You'll save up to 8%. (Quarterly is the most expensive)
• Use Credit Cards. Some companies are now allowing credit cards, so you can utilize it for additional 1-5% bonus in points or cash back.
• If you want term, use a true independent agent.

 

[Esquire]

Paging @Esquire for a few comments on wills, family trusts, etc...

Can't say I know a whole heck of a lot about wills, trusts and estates, beyond what I learned in law school ... but I will offer this ... I've seen a lot of families torn apart fighting over estates ... my own family, not excepted.

My dad will not speak to my aunt ... and my aunt will not speak to my dad. Been that way going on 15 years now ... ever since Grandma died. Fighting over money. Same thing happened when my uncle died. Tore the family apart.

I'm sure grandma would turn over in her grave if she knew what impact her "generosity" had on the family.

You can't be to careful about how you draft a will.

If you have something of value to convey, you've got to make sure the language is airtight. You have to think like a money-hungry litigant and anticipate the potential problems before they occur.

Otherwise ... what happened to my family ... may happen to yours. Quite sad, really ...

 

[Vigilante]

My uncle had the foresight to put into his will that if any of his kids contested any portion of it, they were cut out completely.

Hard to believe that the clause was needed, and it was.

 

[Esquire]

Actually ... now that I think about it ... here's a tip:

Suppose grandma has $50k in home equity ... $50k in credit card debt ... and she is fading fast.

Then ... sure enough ... a few weeks later ... grandma dies.

What would happen?

Well ... the estate's creditors take $50k ... and her heirs would get nothing.

But ... suppose Grandma filed for a Chatper 7 bankruptcy one week before she died ...?

In that scenario ... (depending on which state you live in ) ... Grandma can claim a homestead exemption for the $50k ... and discharge the rest.

Yes ... odd as it may sound ... dead people can get a "fresh start" in bankruptcy too ... provided they file their petition before they die.

It's a real clever strategy very few people ever think of.

Spend $1500.00 on a Chapter 7 bankruptcy ... Save $50k (or more).

Money in the bank.

 

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[Chitown]

My dad will not speak to my aunt ... and my aunt will not speak to my dad. Been that way going on 15 years now ... ever since Grandma died. Fighting over money. Same thing happened when my uncle died. Tore the family apart.

@Esquire,

This doesn't surprise me one bit!

Hard to believe that the clause was needed, and it was.

@Vigilante,

Neither does this.

And not to hijack the thread...I used to make my living as an actor. Made a shit load of money. The one person who I didn't speak to off/on for 10 years because he felt my money was his? My dad! F*cking amazing, the sense of entitlement my pops had about my hard earned scratch simply because he procreated me!

Great thread, Vig! Something I've thought a lot about because I'm an older father - I was 39 when my first son was born.

 

[Iwokeup]

@Esquire,

This doesn't surprise me one bit!


@Vigilante,

Neither does this.

And not to hijack the thread...I used to make my living as an actor. Made a shit load of money. The one person who I didn't speak to off/on for 10 years because he felt my money was his? My dad! F*cking amazing, the sense of entitlement my pops had about my hard earned scratch simply because he procreated me!

Great thread, Vig! Something I've thought a lot about because I'm an older father - I was 39 when my first son was born.

No kidding? You're dad thought that you owed him?

That's crazy!

Though I will admit that as soon as I became a doctor the friends and family needing a handout became a thing. That noise stopped when I asked each one...'So what's your plan for rapid repayment?"

[Crickets]

People's sense of entitlement is breathtaking. Exactly like that woman who got destroyed by Neil Cavuto.

 

[Iwokeup]

It's not complicated; keep it simple.

• How much would it cost to replace you inside your business?
• How much would it cost to replace you to your family?

That's really it.

In regards to business:

1. If you're a sole proprietor, you'll need to have enough of a policy to A.) hire someone to keep the wheels on, or B.) replace the income your spouse would lose if they left their job and kept your business' wheels on, as @Vigilante mentions.
2. If you have a business partner, consider a buy/sell type of agreement where you can setup the insurance policy to pay your spouse the current market value of your half.
3. Consider the expenses to close your doors, taxes, and other fees and penalties which might occur from not fulfilling orders, terminating a lease, etc.

In regards to personal:

1. Multiply your income by a standard multiple (usually a flat 10x), and add any additional transferable debts.
2. Subtract liquid assets.
3. Consider estate taxes if your estate is over $5.125M, inheritance or other taxes if they are taxable, and any charities you might want to leave a small chunk to, if that's your thing.

Of course, always consult legal and tax professionals, and make sure your beneficiaries and contact information are updated, at minimum, annually.

TIPS:

• Pay Annually. You'll save up to 8%. (Quarterly is the most expensive)
• Use Credit Cards. Some companies are now allowing credit cards, so you can utilize it for additional 1-5% bonus in points or cash back.
• If you want term, use a true independent agent.

Thanks for this post. I always wondered whether that 10x multiple was realistic.

Looked into it and it looks like I'll have to get the medical exam. PITA, but worth it. Thanks for the tips!

 

[Vigilante]

When I sold one of my companies, a close relative looked at me across the table and said

"are you going to give me some money?"

He was dead serious. There was no pullback. He thought I would do it.

Took my breath away. It was sad.

He miscalculated.

 

[Iwokeup]

When I sold one of my companies, a close relative looked at me across the table and said

"are you going to give me some money?"

He was dead serious. There was no pullback. He thought I would do it.

Took my breath away. It was sad.

He miscalculated.

So what, exactly, did said relative think that he'd done to deserve a cut? Other than blood relationship?

Come to think about it. Ayn Rand was right about producers and takers.

 

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[Vigilante]

So what, exactly, did said relative think that he'd done to deserve a cut? Other than blood relationship?

Come to think about it. Ayn Rand was right about producers and takers.

Zero. Blood only.

 

[Iwokeup]

Zero. Blood only.

Huh.Sad.

 

[Chitown]

People's sense of entitlement is breathtaking.

@Iwokeup,

"Breathtaking" is the proper descriptive.

 

[Chitown]

"are you going to give me some money?"

He was dead serious. There was no pullback. He thought I would do it.

@Vigilante,

WTF!!!???

 

[Vigilante]

@Vigilante,

WTF!!!???

People will ask complete strangers who win the lottery for money.

In this case, I didn't win the lottery, but it wasn't a stranger.

That's the way sidewalkers are. He probably figured it was worth a shot.

 

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[Chitown]

@Vigilante,

WTF!!!???

I used to think this was a class issue - I'm a working class kid from Chicago - but have since realized my assessments were completely off base. I talk to some of my wealthier friends about their experiences post-death of a rich relative and goodness gracious...it's a wonder most of those folks didn't start reaching for weapons at the reading of the will.

I like the idea of freezing out anyone who feels they're not receiving enough of my loot upon my demise.

 

[Red]

Also, just a tip from personal experience here- Once you outline your desired dispersion of assets (whatever that may be), make sure & distribute multiple copies to your loved ones who are involved. I have personal experience with a will gone "missing" that I, unfortunately, did not receive a copy. Let's just say this situation is still in the court system. Learn from my mistake.

 

[Ubermensch]

I will let you know in this thread if I discover anything of value from building a relationship with a local business broker.

From an article in Inc.com, here are five questions to ask when selecting a business broker :

1. background and credentials

2. do they do their homework?

3. how do they promote your sale?

4. what is their buyer screening process?

5. how many listings do they currently have

and I would add :

6. what similar businesses have they sold previously

7. what is their core area of expertise (what sector)

8. get the contact information from the last three businesses they sold

9. Ask them what questions THEY would ask a business broker.

http://www.inc.com/bob-house/5-questions-to-ask-when-choosing-a-business-broker.html

Good way to find a business broker.

You can search for the top brokers in your area.http://www.bizbuysell.com/

 

[Bellini]

These scenarios remind me of that 1990's movie "GREEDY" (comedy with Michael J Fox and Kirk Douglas)

That movie is an example of what you're talking about....family fighting over the rich uncle's money and the devious lengths they go to.

Very sad.

 

[Ubermensch]

So what, exactly, did said relative think that he'd done to deserve a cut? Other than blood relationship?

Come to think about it. Ayn Rand was right about producers and takers.

Imagine what she would think if she woke up today? She would say "I told you so." Actually, she would say: "John Galt told you so."

 

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[Andrew87]

Thanks for this post. I always wondered whether that 10x multiple was realistic.

Looked into it and it looks like I'll have to get the medical exam. PITA, but worth it. Thanks for the tips!

I did this recently and the nurse actually called to set up the appointment with me. They came to my house at a convenient time and day for me. Only lasted about 30 minutes at no cost. Easier than I thought.


Sent from my iPhone using Tapatalk

 

[Vigilante]

I did this recently and the nurse actually called to set up the appointment with me. They came to my house at a convenient time and day for me. Only lasted about 30 minutes at no cost. Easier than I thought.


Sent from my iPhone using Tapatalk

When I did this the nurse was a bit overzealous about how she wanted the urine sample collected. It was memorable.

 

[Yoda]

I did this recently and the nurse actually called to set up the appointment with me. They came to my house at a convenient time and day for me. Only lasted about 30 minutes at no cost. Easier than I thought.

This is often the case. Nurses are commissioned for each medical exam they complete, so it's in their best interest to get it done, and get it done fast. They are ALWAYS free.

To expand on the entire life insurance exam thing:

1. Completing an exam is the only way to get the true lowest cost per thousand. If you skip the medical and opt for a policy where it's not required, you're getting a policy with a baked-in premium increase, regardless of health.
2. Completing an exam is the only way to get certain death benefit amounts, called face amounts. Even if you bought a no medical type policy from several carriers (stacking policies), you'd only be able to amount up to about $2M in total coverage, assuming you're very healthy. If you need more than $2M, you have no other choice but to complete the exam. Now, if you stack policies, you're not only paying a higher cost per thousand, but policy fees which aren't paid by the agent are passed on to you.
3. An exam is quick and easy; blood pressure 3x (so an average can be taken), height, weight, blood draw and urine sample. On average, 20 minutes should be sufficient, and as mentioned, this can be completed at your home, place of business, etc. at your convenience. If you need a larger death benefit or are of a certain age, and EKG could be required, as well.
4. After complete, you can always request the entire blood profile from the medical company, and they are required to give it to you, at no charge.

 

[Vigilante]

So I am heading on the road for the week.

I took the time to show my wife how I mobilize the business. The same elements of mobilizing the business are the same tool kit you could use to shut down non-essential functions in the event of an emergency.

Your catastrophic plan should include:
1. How the cash flows
2. Where the critical documents are
3. How to turn off non-essential functions
4. How to keep alive essential functions

For people who live in the online world, there are simply things that have to be done amidst the grieving to keep the empire from imploding. So, a simple TO DO list, with step by step instructions.

We spent 20 minutes on it today. I made her do it physically. I walked her through it, and had her take notes.

It's part survival, and part pain in the a$$ elimination. @AllenCrawley, @LightHouse, @biophase and others, you need to do the same thing. You need to leave a clear emergency plan for your survivors.

If you got hit by a bus tomorrow, there are simply things that must be done in real time in order to preserve the assets of the online portions of your business.

Amazon doesn't have a death forgiveness policy.