News & FAQ

OWNER:

I have heard about “exit planning,” but I’m already very busy and don’t see any need for it now. I am still excited about my business and don’t plan to leave it any time soon.

Exit planning is a process to help you grow your business, avoid problems, limit risks, and make your business more profitable while you own it. And, a more profitable business is like to bring a higher sale price when you are ready to leave. Exit Planning is often best done when you still have many years before you are planning to leave.

OWNER: You know, I’ve thought about bringing a few employees into ownership positions, but I don’t quite believe that they will eventually be able to buy me out.
 
M&B: That’s a valid concern, but proper exit planning can help you reduce that risk and many others, including the problems that when a co-owner or key employee dies or becomes disabled, or if something happens to you.

OWNER: What if my business partner dies or quits working?
 
M&B: Your buy-sell agreement will describe what happens to your stock ownership when events occur such as the death, disability or termination of employment of one of you, or if you don’t get along anymore. Your health might affect your time frame to retirement, but in many cases the business or its owners buy insurance to help provide funds for a buy-out on death or disability and even for a life-time sale.

OWNER: What if I start a new joint venture?
 
M&B: There are many things to consider in this type of situation. First, who will contribute what (i.e., cash or property) and how much of each? Will you, as the investor, have a preferred position when distributions are made? Which decisions will be made by the “idea guys” and which will require your approval? We will also need to talk about the type of buy-sell arrangements you will have. For example, can you require your friends to buy you out at some point, and can your friends require you to sell your interest at some point?

OWNER: What if I make an employee a shareholder?
 
M&B: If you have the right people, offering stock ownership can be a significant benefit to them. They may stay with you longer and work harder. As a business owner, you need to be sure you are really ready to have employees as co-owners. Even if you only have one employee and he or she only owns one share of stock, they are still an owner. As an owner, they have several rights afforded to them that you, the business owner, may not be comfortable with. It is possible to design different plans for employees, i.e., stock plans, bonus plans and vesting schedules.

OWNER: How can I limit risks and save money?
 
M&B: By doing several things such as: review your customer contracts and invoices; review your bank loans; review your office or business space lease and review your business operations. If you own the business real estate yourself, could you benefit by putting this in a separate company? Should you share ownership with children or place it in a trust for children?

OWNER: What if I change to an LLC?
 
M&B: To do this, it would be a good idea to get a valuation on your business. If a part of the business is still in development and its value is still small, you can sell it to the new LLC that you’ll own. There are many good reasons to operate as an LLC, but there are advantages to being a “C” corporation too. It would be a good idea for us to talk with your accountants about this.

OWNER: What if I give ownership to my children?
 
M&B: First, you must determine if any of your children are interested in taking over the business. Secondly, you must be willing to delegate responsibility and management to your children. Fairness is important, especially if they each have their own interests in the business. Of course, we will have to look at your own cash flow needs for your retirement and the taxes involved. We will want to limit any income, gift or estate taxes.

OWNER: How can I limit risks and save money within the employee realm of my business?
 
M&B: Review your employee manual and employee policies. Evaluate things like promising excessive vacation accruals or do you promise warnings for performance issues? Colorado is an at-will state and promises of warnings create additional liability and costs.

OWNER: Do I have to pay my salaried employees overtime?
 
M&B: With few exceptions, employers must pay an employee one and one-half times his or her regular hourly wage rate for every hour worked in excess of 40 in a week i.e.: seven consecutive days. In Colorado, overtime pay may also be required if an employee works more than 12 hours in a day. The exceptions to these general rules however are full of pitfalls. Calculating an employee’s regular hourly wage may mean including bonuses or commissions paid and considering what qualifies as “hours worked.” It is important to note that employees are presumed to be non-exempt until an employer can prove otherwise.

OWNER: Do I need an “exit plan” if I’m not ready to leave my business?
 
M&B: Exit planning is a process to help you grow your business, avoid problems, limit risks and make your business more profitable while you own it. Plus, a more profitable business is likely to bring a higher sale price when you are ready to leave. Exit Planning is often best done when you still have many years before you are planning to leave.

OWNER: What if my business partner dies or quits working?
 
M&B: Your buy-sell agreement will describe what happens to your stock ownership when events occur such as the death, disability or termination of employment of one of you, or if you don’t get along anymore. Your health might affect your time frame to retirement, but in many cases the business or its owners buy insurance to help provide funds for a buy-out on death or disability and even for a life-time sale.

OWNER: What if I start a new joint venture?
 
M&B: There are many things to consider in this type of situation. First, who will contribute what (i.e., cash or property) and how much of each? Will you, as the investor, have a preferred position when distributions are made? Which decisions will be made by the “idea guys” and which will require your approval? We will also need to talk about the type of buy-sell arrangements you will have. For example, can you require your friends to buy you out at some point, and can your friends require you to sell your interest at some point?

OWNER: What if I make an employee a shareholder?
 
M&B: If you have the right people, offering stock ownership can be a significant benefit to them. They may stay with you longer and work harder. As a business owner, you need to be sure you are really ready to have employees as co-owners. Even if you only have one employee and he or she only owns one share of stock, they are still an owner. As an owner, they have several rights afforded to them that you, the business owner, may not be comfortable with. It is possible to design different plans for employees, i.e., stock plans, bonus plans and vesting schedules.

OWNER: What if I give ownership to my children?
 
M&B: First, you must determine if any of your children are interested in taking over the business. Secondly, you must be willing to delegate responsibility and management to your children. Fairness is important, especially if they each have their own interests in the business. Of course, we will have to look at your own cash flow needs for your retirement and the taxes involved. We will want to limit any income, gift or estate taxes.