When planning for the future, you have a wealth of options related to who should continue to run your business. Many business owners’ plans fall short because they are unaware of the many options they have available to them and the pros and cons of each path.

One common exit path is a family business transfer. This allows you to keep the business in the family and still have an attachment to the business. You may not get as much money for this type of transfer and it could take longer to complete, but there may be real benefits as well.

Benefits of a Family Business Transfer

There are many benefits that come along with transferring the ownership of your business to your children or someone else in your family.

Financial Security: If you properly structure the business transfer, you may be able to receive the amount of income you need and want by the end of the transition process. Further, you can design the transfer so that you retain control of your business during the transfer period and until you receive all of the money you want. You might achieve this benefit through ongoing involvement with the company, participation in profits as an owner, and/or sale of ownership.

Time: If you are not ready to leave the business today, you can structure the transfer to the next generation to take 5–10 years, depending on your goals and objectives. You can create a custom transition that addresses the abilities of the successor owners and the readiness of the business.

The timeline for this path gives you time to slow down, develop new interests, and prepare yourself and your business for life after the transfer. It also gives you time to collect income from salary, perks, and distributions while maintaining control.

Taxes: Using a strategy customized to family transfers, you may be able to minimize certain taxes. You might create a balance among income tax, capital gains tax, and gift and estate tax that fully leverages multiple tax planning techniques. You may be able to achieve a better outcome with a thoughtful combination of planning strategies.

Values-Based Goals: Owners often choose to transfer their businesses to children because, if done correctly, it achieves so many of their values-based goals. From the role of the business in the community to taking care of future generations, family business transfers can help to achieve these types of goals in ways that a traditional sale might not.

Challenges of a Family Business Transfer

Although there are some obvious perks to keeping the business in the family, there can be some challenges you need to be aware of before you make your decision.

Financial Security: Basing a business transfer on your family ties, especially ties to someone who can’t or won’t run the business properly, is a huge threat to your financial security and the very existence of your business.

Time: If you want to leave your business within a year, remember that getting paid full value for the company from children generally takes several more years than a sale to a third party or Employee Stock Ownership Plan (ESOP).

Taxes: Without careful tax planning, you could pay far more in taxes than necessary when transferring ownership to your family.

Values-Based Goals: Sometimes family transfers run amok if your goals are not in line with those of your family.

None of these challenges are insurmountable unless you fail to recognize the existence and significance of each and create a written and comprehensive road map to address them.

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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notification.

 

  

KAFL Insurance Resources
800 Linden Ave
Rochester, NY 14625
www.kafl.com
585-271-6400

Copyright © 2021 Business Enterprise Institute, Inc. All rights reserved.

 

It is safe to say that this year was full of surprises. Some businesses thrived, while in other areas jobs were lost, companies were forced to go under, and we even lost loved ones along the way. Many businesses were affected by the pandemic in some way or another. According to a survey conducted by the PNAS (Proceedings of the National Academy of Sciences of the United States of America), 43% of businesses temporarily closed, and nearly all of these closures were due to COVID-191.[1]

We also learned that many small businesses are financially or structurally fragile. Companies were often strapped for cash, even when they had access to temporary government stimulus funds.

Although we may not have been able to foresee and properly plan for this year’s business and family disruptions, there are a few lessons to be learned about planning for the future so that your business can be more flexible and tolerant to change. We saw that responding to tough situations can be a good way to showcase your creativity and motivation to stay on track.

Flexibility is Key

Major changes in the economy, your industry, or your health can happen quickly. Companies that have the ability to turn aspects of their business model and operations on and off more quickly can minimize negative impacts (or maximize positive impacts) of unexpected changes. Remember that it may not be enough to be prepared to change direction in your own mind.  Communication with your employees can keep everyone moving together and smooth out rough spots if you have to change gears.

Having a strong and adaptable team and team leaders will also help with transitions. Industry changes happen often, and sometimes randomly, so having a team in place that is able to think on their feet and come up with creative improvements to the business can help your business thrive even in trying times.

Also, by leasing your equipment, vehicles, office space, and even employees, you can make your business more agile. Hiring contract labor or utilizing outsourced vendors can give you more freedom to make changes quickly. Think of it as adjusting dials in your business rather than locking yourself into fixed or inflexible investments.

Fire Drills Improve Outcomes

It can take valuable time to work through emergency or disaster scenarios, and it can be awkward to “practice” what you’ll do if faced with a major threat or disruption in your business. As awkward as it may seem, fire drills do work. When your team knows what the process is during an emergency or major change of events, they tend to act more calmly and make better decisions when an actual emergency does arise. Work through and document what you will do if:

·     You lose your largest customer or contract.

·     You lose your top executive or manager unexpectedly.

·     Your distribution channels are disrupted.

·     One or more components of your technology stack fails.

The more prepared you are for the unexpected, the better off your company and your employees will be. Don’t let them get thrown off by surprises. Have open communication about what they can expect if a major change happens.

A Belt and Suspenders Work Better

Planning for multiple solutions to a single problem is a good way to manage the impact of a disruption in your business (or in your life). Owners of closely-held businesses often have a lot of their wealth, and their family’s security, tied up in their business. However, the business is often illiquid, or its value may not be enough to support your family for an extended period of time. Owners who prepare for unwelcome changes might be able to use either a “belt” or some “suspenders” to hold up their family, such as:

·     Investing in income-producing assets outside of the business.

·     Reducing company debt (or at least removing yourself from personal guarantees for company debt).

·     Maximizing opportunities for funding retirement through qualified retirement plans.

·     Developing a “sinking fund” in the business.

Having some type of variation of solutions to any given problem can also ease the tension you or your family might have about the unknown future ahead of you. Preparation for the worst will only benefit the business down the road. You can truly never be too prepared.

We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. 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.

[1] https://www.pnas.org/content/117/30/17656

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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notification.

  

KAFL Insurance Resources
800 Linden Ave
Rochester, NY 14625
www.kafl.com
585-271-6400

Starting the preparations to sell your business is never easy. Selling or buying a business comes with mixed emotions and hard decisions. There are a lot of variables to consider. One action item to discuss early is the process of due diligence. In order for you to attract a buyer to your company, you must engage in the pre-sale due diligence process well before your anticipated departure date.

No experienced buyer purchases a company without first learning everything there is to know about it. This investigation process is known as “due diligence.”

What is Due Diligence

Due diligence is the process in which a buyer scrutinizes every detail about your company, from financial reporting to earnings confirmation, to human resources practices, looking for risks, flaws, opportunities, and ways to justify a reduction in the purchase price they pay. Simply put, this is the buyer’s thorough investigation of every aspect of your business.

Due diligence is like an audit, or review, performed to confirm the facts of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.

So, when we talk about pre-sale due diligence, we mean the detailed investigation of your own company, performed by your own team, done well before you take your company to market.

What to Expect

Time rarely favors the seller, so it is in your best interest to start the pre-sale due diligence process early. The actual internal investigation itself typically takes between 30 and 60 days. But, as a seller, if you uncover information about your company that will influence the purchase price, you want to have time to fix those issues before the company goes on the market. You might want months, or even years, to make changes and set up new trends.

By discovering not only the strengths, but also the weaknesses of your company before undertaking the sale process, your advisors can focus on making the company more valuable. In some cases, pre-sale due diligence uncovers significant “repairs” that must be made to increase value or decrease risk. Maintenance and repair activities designed to make the company more valuable may include hiring key management, eliminating overhead, delaying (or accelerating) the purchase of significant capital equipment, resolving shareholder disputes, cleaning up employee records and policies, clearing bad debt, and so on.

There may be several parties involved in pre-sale due diligence: your lawyers, accountants, financial advisors, transaction representative (broker or investment banker), and administrative staff. Eventually your buyer’s team will have the same types of players, or even more of them. With so many people involved, it may be best to get organized to avoid any confusion throughout the process.

You and your advisors may need to clean up current and historical financial statements, contracts, customer accounts, ownership records, governing documents, leases, or threatened claims or lawsuit before you take your company to market. Buyers are looking for each and every skeleton, big or small, and they will find them. The buyer is looking for anything they can use to lower the price they pay for your business. Don’t let them find anything. Lay everything out and work on improving any weaknesses before potential buyers get the opportunity to use this information against you.

Perks of Planning Ahead

Planning and starting the due diligence process well in advance can have several perks for your business. Starting the pre-sale due diligence process may save you time and money in the long run. Uncovering your skeletons and working to fix them early can protect and could even potentially increase the purchase price of your business. This process can also protect your goals and your team: your co-owners, key employees, and family.

Through the process, members of your advisor team can come to know and understand your company as well as you do—and far better than a potential buyer. This understanding can enable your transaction advisor to prepare and share information with potential buyers in a way that highlights the strengths of your business.

If you plan to sell your business, you will have to go through this process one way or another. So, you might as well start early and figure out areas of the business you can improve now before you put the business on the market.

We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. 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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notificaiton.

 

  

KAFL Insurance Resources
800 Linden Ave
Rochester, NY 14625
www.kafl.com
585-271-6400

Copyright © 2020 Business Enterprise Institute, Inc. All rights reserved.

It can be difficult to consider what will happen to your business and your family if you die unexpectedly.  Without proper planning, you could be leaving your family and/or key stakeholders in a huge mess. Proper planning allows you to keep your business on the right path even after an unexpected tragedy leaves you unable to continue running your business.

Estate plans focus on transferring assets upon an owner’s death. A successful estate plan achieves three important personal goals:

  1. Financial Security: For the decedent’s heirs.
  2. The Right Person: The decedent (rather than the state) chooses who receives his or her estate assets, including ownership of the business.
  3. Estate Tax Minimization: Reduces the government’s bite, leaving more funds for the decedent’s heirs, when estate taxes are a factor.

Estate planning can also be a tender topic for business owners because they will occasionally need to decide which family member is the most appropriate candidate to continue running the business after their death. Families have been torn apart over poorly executed estate plans. Consider the hypothetical example below.

Jonah Kaczmin sat nervously in his office. Until the day before, he had been president of Kaczmin’s Electronics, one of the region’s largest electronic component distributors. Now he was on his way out of a job and felt he was a victim. Naturally, his first thought was to sue those responsible for his misfortune. The targets of his wrath were his younger sister and his mother. They had forced him out of the business, out of a job, and felt he was a victim.

After his father’s death, Jonah had received 49 percent of the stock in the family business. Another 49 percent share went to his sister. The remaining two percent—the swing vote—was held by their mother.

Jonah’s father had brought him into the business early and taught him well. After the founder’s death, Jonah assumed all responsibilities for sales and became the key man in the business. His sister, Stella, handled the bookkeeping and other administrative matters. Her husband managed the customer service department. 

Despite the economic slump that hit the region, the business persevered under Jonah’s stewardship. It had a long-standing tradition of service and good name identity because the elder Kaczmin had pioneered new packaging and distribution methods.

Because of his dedication to the business, Jonah had not spent much time nurturing family relationships. He was less a devoted son to his mother than was his sister a devoted daughter. As their mother aged, she became increasingly susceptible to the influences of her daughter. Family friction continued. A confrontation was inevitable.

Jonah had always assumed that his superior abilities and position as president and board chairman would enable him to win any family showdown. He was wrong. At a special meeting of the board of directors, Jonah was removed from his posts, fired as an employee, and given three months of severance pay—after 25 years in the business.

Johah naturally felt victimized…but not so much by his sister and mother as by his deceased father. By failing in the most important remaining task in his life—to plan his estate and the future of the business—the elder Kaczmin made his son an unintended victim.

Jonah’s unfavorable business transition experiences may have been avoided had Jonah’s father asked and answered six critical questions.

  1. How can I provide for an equitable distribution of my estate among my children?
  2. Who should control and eventually own the family business?
  3. How can I use my business to fuel the growth of my estate outside of my business interests?
  4. How do I provide for my family’s income needs, especially those of my spouse and dependent children, after my death?
  5. How can I help preserve my assets from the claims of creditors during my lifetime and at my death?
  6. How can I minimize estate taxes?

An owner’s thoughtful answers to these questions, followed by appropriate implementation of a plan, may well prevent a similar experience in your family and support a smoother business transition for all parties involved.

Keep in mind that a well-crafted estate plan is only one key element of a successful plan for you, your family, and your business. Don’t let an unattended estate plan be the weak link in your overall plan.

We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. 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.

Keep Your Family Intact with Proper Estate Planning

It can be difficult to consider what will happen to your business and your family if you die unexpectedly.  Without proper planning, you could be leaving your family and/or key stakeholders in a huge mess. Proper planning allows you to keep your business on the right path even after an unexpected tragedy leaves you unable to continue running your business.

Estate plans focus on transferring assets upon an owner’s death. A successful estate plan achieves three important personal goals:

1. Financial Security: For the decedent’s heirs.

2. The Right Person: The decedent (rather than the state) chooses who receives his or her estate assets, including ownership of the business.

3. Estate Tax Minimization: Reduces the government’s bite, leaving more funds for the decedent’s heirs, when estate taxes are a factor.

Estate planning can also be a tender topic for business owners because they will occasionally need to decide which family member is the most appropriate candidate to continue running the business after their death. Families have been torn apart over poorly executed estate plans. Consider the hypothetical example below.

Jonah Kaczmin sat nervously in his office. Until the day before, he had been president of Kaczmin’s Electronics, one of the region’s largest electronic component distributors. Now he was on his way out of a job and felt he was a victim. Naturally, his first thought was to sue those responsible for his misfortune. The targets of his wrath were his younger sister and his mother. They had forced him out of the business, out of a job, and felt he was a victim.

After his father’s death, Jonah had received 49 percent of the stock in the family business. Another 49 percent share went to his sister. The remaining two percent—the swing vote—was held by their mother.

Jonah’s father had brought him into the business early and taught him well. After the founder’s death, Jonah assumed all responsibilities for sales and became the key man in the business. His sister, Stella, handled the bookkeeping and other administrative matters. Her husband managed the customer service department. 

Despite the economic slump that hit the region, the business persevered under Jonah’s stewardship. It had a long-standing tradition of service and good name identity because the elder Kaczmin had pioneered new packaging and distribution methods.

Because of his dedication to the business, Jonah had not spent much time nurturing family relationships. He was less a devoted son to his mother than was his sister a devoted daughter. As their mother aged, she became increasingly susceptible to the influences of her daughter. Family friction continued. A confrontation was inevitable.

Jonah had always assumed that his superior abilities and position as president and board chairman would enable him to win any family showdown. He was wrong. At a special meeting of the board of directors, Jonah was removed from his posts, fired as an employee, and given three months of severance pay—after 25 years in the business.

Johah naturally felt victimized…but not so much by his sister and mother as by his deceased father. By failing in the most important remaining task in his life—to plan his estate and the future of the business—the elder Kaczmin made his son an unintended victim.

Jonah’s unfavorable business transition experiences may have been avoided had Jonah’s father asked and answered six critical questions.

1.  How can I provide for an equitable distribution of my estate among my children?

2. Who should control and eventually own the family business?

3. How can I use my business to fuel the growth of my estate outside of my business interests?

4. How do I provide for my family’s income needs, especially those of my spouse and dependent children, after my death?

5. How can I help preserve my assets from the claims of creditors during my lifetime and at my death?

6. How can I minimize estate taxes?

An owner’s thoughtful answers to these questions, followed by appropriate implementation of a plan, may well prevent a similar experience in your family and support a smoother business transition for all parties involved.

Keep in mind that a well-crafted estate plan is only one key element of a successful plan for you, your family, and your business. Don’t let an unattended estate plan be the weak link in your overall plan.

We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. 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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notification.

 

  

KAFL Insurance Resources
800 Linden Ave
Rochester, NY 14625
www.kafl.com
585-271-6400

 

Copyright © 2020 Business Enterprise Institute, Inc. All rights reserved.

Next-level management teams are the drivers behind building business value. But how can you and your advisors attract and keep next-level management teams? The answer lies within incentive plans.

When incentive plans are properly designed and implemented, your business has the potential to grow well after you sell. Well-executed incentive plans can motivate each member of your management team to measurably increase the value of your company.

It is recommended that incentive plans only reward key employees if the business value and/or cash flow increases by a predetermined amount each year. Each incentive plan should be customized to each key employees’ role and responsibilities and incorporate these four basic elements:

1. Set performance standards that are tied to increasing the value/cash flow of the business necessary to meet your goals.

2. Create specific, attainable standards.

3. Implement substantial incentives and rewards if targets are met.

4. “Handcuff” your key employees, so to speak, to make the incentives so appealing that they are encouraged to stay with the company until goals are achieved.

Many owners create incentive plans or bonuses for their key employees so that key employees cannot obtain the bonus unless they stick around for a certain amount of time. This way, you can increase the chances that once the business is sold your key employees stay and continue to grow your business. This strategy “handcuffs” employees to the business by giving them greater access to compensation benefits the longer they stay. Having these types of plans in place may also increase the likelihood of a sale because potential buyers love to see trusted employees motivated to stay on and continue to grow the business.

Understand what motivates your employees. It might not only be a bonus of some kind. Think about promotions or other rewards. Are they interested in equity or cash? If your employees are not motivated to achieve their rewards, the incentive plan may become ineffective. The plan also becomes obsolete if the standards don’t increase the value of the business.

Consider these various forms of incentive plan alternatives:

·     Non-Qualified Deferred Compensation plans with incentive-based benefit formulas

·     Stock Appreciation Rights plans

·     Phantom Stock plans

·     Cash bonuses (current and deferred)

·     Stock bonus plans

·     Stock option plans

·     Stock purchase plans with or without minority discounts

Each of these types of plans has its own strengths and weaknesses. The lesson here is that there are a variety of types of incentive plans to choose from.

Building a Plan

There are a few basic steps to follow when developing the right incentive plan. First and foremost, back up a step and identify your asset gap. By determining where you are today and where you want to be, in terms of business value, you can start establishing some goals, and then you’ll design an incentive plan that is intended to help you meet those goals on your desired timeline.

Create personal and professional goals. Obviously, you will want to plan for the success of your business but making plans for your personal life after you leave the business will also help provide clarity to you and your team.

Build and train your management team to be trusted enough to grow the business after you leave. Ensure they have the ability, expertise, and most importantly, willingness, to grow the business at the rate necessary for you to achieve your goals and objectives.

Finally, uncover how you can utilize your management team to help you achieve these goals. Create effective incentive plans to increase business value and motivate your employees. Incentive plans not only benefit the key employees, but if designed correctly, they can benefit you as well as the new owner and the business well into the future.

No matter whom you choose as your successor, capable management that stays with the company after an owner’s departure is an important element for a successful future.

We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. 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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notificaiton.

 

KAFL Insurance Resources
800 Linden Ave
Rochester, NY 14625
www.kafl.com
585-271-6400

Copyright © 2020 Business Enterprise Institute, Inc. All rights reserved.

Dear Pennsylvania Insurance Department Licensee,

You are receiving this notice because your Pennsylvania Insurance license is scheduled to expire within the next 60 days.  Please refer to your license for your specific expiration date.  In response to the COVID-19 spread in the Commonwealth and pursuant to 40 P.S. 310.8(e), the Pennsylvania Insurance Department is extending the licensing renewal deadline until further notice.

We encourage you to take advantage of our online resources to renew your license. You can renew your license electronically at www.sircon.com/pennsylvania or www.nipr.com.

Please note: If you are unable to renew your license by the license expiration date, any and all renewal requirements, including CE, are still applicable and the Department will work with licensees once COVID-19 has been contained to meet these requirements.

While the Department strongly encourages licensees to take advantage of online continuing education (CE) courses, we understand that at this time, the circumstances related to COVID-19 may prevent some licensees from being able to complete CE requirements in time for their license renewal. Therefore, until further notice, the Commissioner of the Commonwealth, pursuant to 40 P.S. 310.8(e), will temporarily waive CE requirements for licensees who cannot meet requirements due to extenuating circumstances related to COVID-19.   For licenses requiring CE, visit www.sircon.com/pennsylvania for information about approved online CE courses.

If you have already submitted a renewal application, please visit www.insurance.pa.gov/licensees/onlineservices to use our online licensee search to verify that your license has been renewed or print a copy of your license.  Please allow up to 24 hours for the website to update after renewing your license online.   The Department no longer mails licenses.

This email serves as your official license renewal notice, and you will not receive a paper invoice. The Department encourages all licensees to update your contact information including email addresses through Sircon or NIPR to ensure that you continue to receive future correspondence from the Department.

For additional updates and information visit the Pennsylvania Insurance Department’s website at www.insurance.pa.gov.

 

Office of Market Regulation | Bureau of Licensing & Enforcement | Licensing Services Division

1209 Strawberry Square | Harrisburg, Pennsylvania 17120

Phone: 717.787.3840 | Fax: 717.787.8553 | www.insurance.pa.gov

Taking on any large project can be manageable when you have a reliable process in place. When deciding to exit your business, for example, you will need a proven process in place to ensure you have covered all the bases.

Just like baking, without following the specific process or recipe, you could end up setting off the fire alarms. There is a “recipe” for creating a successful business transfer. The “recipe” below has worked, time and time again, for business owners who are looking toward the future. However, different ingredients in your recipe can change the outcome. Each business is unique and requires slightly different “ingredients” to plan for a successful future ownership transition. You can add these ingredients in any order that you want based on your top priorities, but if you leave out any of the following ingredients you could end up with a vastly different outcome.

First Ingredient – Establish Your Objectives

This first planning step is similar to the eggs in the recipe for the “planning cake” you are baking. This keeps the whole plan together. Without goals and objectives to strive for, your plan will fall apart.

Make a list of your goals and objectives (personal and professional). You may have several business objectives, including some of the following:

·     How you (and your spouse, if active in the business) define financial independence.

·     How you and your spouse define “fairness” regarding distribution of family wealth (including the business) among children if you are considering an inside transfer.

·     When you (and your spouse, if active in the business) want to leave the business and transfer control according to a timeframe you set.

Second Ingredient – Determine the Company’s Value and Cash Flow

This could be considered the flour of the cake you are baking. This is the foundation of how your business will be run. It may fluctuate over time, but you want to gradually keep adding this ingredient throughout the lifecycle of the business.

In addition to knowing what you want (ingredient 1), you must know what you have (the value of your company) before you can plan for the future. You must determine the gap between what you have today and what you need to have by the time you are ready to part with your ownership interest. Determine a baseline value. Get an accurate representation of your business and personal resources. This measurement, along with a professionally reviewed estimate of future cash flow, will give you a more accurate timeline.

Third Ingredient – Build Business Value

The third step in this process could be considered the milk, butter, and spices of your baked treat. This is what really gives your cake flavor.

Once you know what you want (ingredient 1) and what you have (ingredient 2) you must think about how you can motivate key employees to maintain or increase the value of the company before, during, and after a transition. A well-designed incentive plan is a great tool to encourage key employees to continue to grow your business. You want to be sure your business is worth something and can run efficiently after the transition of ownership.

Fourth Ingredient – Ownership Transfers

This ingredient is like deciding if you want chocolate or vanilla frosting on your cake. The succession path that you choose for your business and your family is ultimately your decision. There are a lot of variables to consider when deciding between an inside sale or a sale to a third party.

When considering a sale to a third party, you must thoroughly evaluate your risk profile, business value, and the management team you have in place to help the buyer continue to grow the business. The key to this ingredient is making sure that both you and your business are prepared for the sale process well in advance of the day you go to market.

In contrast, when the plan is to transition ownership to an insider (co-owner, family member, or employees), your attention is more focused on planning the method and the timing of the transfer of ownership. This can include gifting, incremental sales, or even a plan to hold onto ownership for some period of time

Fifth Ingredient – Business Continuity Planning

The fifth ingredient can be compared to making sure you have back-up ingredients, or even a back-up bakery, in case anything goes wrong. This is the step most owners take to plan for the unexpected. Many people fail to create a back-up plan because they assume their baking skills are flawless and everything will just work out.

It is critical to make contingency plans for what will happen if you die suddenly or become severely ill before the transfer can be completed. You may need to make arrangements for the financial well-being of your family. You may need to talk to those you’ve planned to run the company if you are not able to do so.

Sixth Ingredient – Personal Wealth and Estate Planning

This ingredient can be compared to all of the planning you’ll do to make sure everyone involved enjoys the cake. Where will you get together? Do you have plates and forks? How will the cake get from your kitchen to the party?

A key goal of estate planning is to make sure that, whether you own your business at your death or not, the ownership of your business or the value you received for it, along with all of your other assets, are transferred when and to whom you see fit. You may need to plan for your family’s standard of living to be maintained. You may need to address fairness and/or equality among your heirs. You may wish to do something for charities you care about.

Process is Everything

Process is everything when it comes to long-term planning. Following a process to complete any large task can help any project flow smoother, especially when a process is proven to work. Implementing elements of each of these ingredients to your plan can significantly impact your planning process.

We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. 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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notificaiton.

 

KAFL Insurance Resources
800 Linden Ave
Rochester, NY 14625
www.kafl.com
585-271-6400

 

When you started your business, it was probably obvious that you needed a plan. It may be less obvious, though, that when you leave your business, no matter how you do it, you’ll also need a plan. The reality is that every action you take during the life of your business has an impact on your departure down the road.

Getting Full Value

No matter who you decide will be your successor in the business, you will most likely want to build value in your company. Third-party buyers or investors will tend to look at objective, quantifiable facts when deciding how much to offer for your business. Employees, family members, and co-owners will want to feel confident that they are taking over a healthy and stable enterprise.

Buyers compare the relative strength of your company’s value drivers to those of your competitors. They commonly look at all of the characteristics to ensure your business is a well-managed operation.

Businesses that plan ahead to build their value drivers early may carry less risk. Being deficient in just one or two value drivers can impact business value or deter potential buyers. This realization may come as a shock to many business owners. Even if the business is profitable, they may have overlooked some important value drivers.

This Process Takes Time

Implementing strong value drivers is one thing. Having the ability to sustain and grow each area over time can demonstrate the strength of your business and the potential growth it represents. Buyers may also want to confirm that a company’s value drivers are not temporary or short-term. By demonstrating the strength and stability of the value of your company, you may be able to boost your sale price, streamline your exit process, and find the right successor on your timeline.

We know change takes time and results can fluctuate over the years. Buyers keep this in mind and can appreciate steady growth. It’s a good idea to keep your value drivers in check and constantly review your progress years before you think about selling. The idea behind a value driver is that it can improve cash flow, expand your competitive advantage, and/or grow your business.

Bonus Perks

Not only can enhancing the value of your business greatly assist your exit strategy, but it may also help you in other ways. When unforeseen circumstances arise, you won’t need to worry as much of the health of your business with strong drivers in place. Unexpected changes may not shake your company’s performance. Value drivers that cause the business to run more efficiently can also give owners more time in their days.  Finally, when you concentrate on improving your company’s value drivers, you may find yourself exploring strategies that you may have otherwise ignored, such as growth through acquisition.

Common Value Drivers

Consider the following important value drivers common to many industries and some ways you might leverage them.

A Stable and Motivated Management Team

You may benefit from an incentive compensation system that is either cash or stock-based, and rewards key employees based on how the company performs (usually measured by increases in pre-tax income).

Operating Systems That Improve Cash Flow Sustainability

Investigate technology stacking options that streamline and connect different systems and processes, with integration that can allow you to demonstrate to a buyer that the business can continue (and grow) profitably after the sale.

A Solid, Diversified Customer Base

It may be possible for you to expand geographically or purchase the customer list of a competitor that is closing its doors.

A Realistic Growth Strategy

Develop a written plan describing future growth and how that growth will be achieved based on industry dynamics, increased demand for the company’s products, new product lines, and other expansion plans. Then share the plan with a trusted advisor or investor who can help you identify weaknesses in the plan so that it can be improved.

Effective Financial Controls

Upgrade to audited financial statements to get the scrutiny of trained professionals. Alternatively, engage an independent firm to conduct a quality of earnings report, verifying the sources and consistency of your income.

Stable and Improving Cash Flow

Ultimately, all value drivers contribute to a stable and predictable cash flow. It is important that your company’s cash flow remains substantial and continues to grow, especially in the two or three years preceding the sale of the business. You can begin working to increase cash flow today by identifying ways to operate your business more efficiently by increasing productivity and decreasing costs. Many business owners find that eliminating their least profitable products or services can free up attention and capacity for more profitable areas.

Installing value drivers in your company might be one of the best things you can do to increase the salability of your company but doing so takes time. The clock is already ticking!

We strive to help business owners identify and prioritize their objectives concerning their business, their employees, and their family. 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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notificaiton.

 

KAFL Insurance Resources
800 Linden Ave
Rochester, NY 14625
www.kafl.com
585-271-6400

 

Succession planning, Exit Planning, and business planning may seem interchangeable in most people’s eyes. However, each type of planning plays a very different role in the process of designing, and then implementing, a strategy for leaving your business and planning for the future. You can’t use one strategy without the others when it comes to running, growing, operating, and eventually leaving a business.

These planning approaches go hand in hand. Although they have their similarities and overlap in some ways, there are some major differences you may want to think about in order to plan effectively for your future and the future of your business.

Succession Planning

Succession planning has become a common term to most business owners. This type of planning strategy is primarily focused on the transfer of leadership, management, and/or ownership of a business from one person to another. This strategy usually encompasses the identification of potential successors and the training of the chosen successor to build the skills and expertise to successfully run the business once the original owner decides to back away or move on.

Succession planning also emphasizes the timeline for when an owner is planning to part with their business. The succession planning process could take years, depending on the availability of successor candidates, business valuation, profitability, current management team in place, incentive plans, etc.

The main difference between succession planning and Exit Planning is succession planning primarily focuses on the smooth transition (succession) of the operation of the business. A primary goal of succession planning is to find the right person to take over your business and make sure the process of leadership transfer go smoothly. Succession planning may primarily focus on the goals and objectives of the business and may not be as focused on the owner’s personal goals for the future.

Exit Planning

Exit Planning can be considered a broader approach to planning for the future. Although one of the main goals of Exit Planning is to ensure a seamless transition from one leader to the next in the business, this approach also considers the future plans of the  owners for themselves and their families. Exit Planning considers a business’s financial status, the valuation of the business, the position in the market, employee benefits, and the owner’s family as well as the community in which the business is operated. It tries to identify the gap between what a business owner has today, and what they want for the future. It really is a full picture of all factors that affect a future change in your relationship to your business. This process encourages planning for everything so that when you are ready to leave your business, you’ve worked through as many factors as possible.

Although each owner’s exit strategy is going to be unique, typically each plan consists of some or all of the following 7 steps.

  • Step 1: Identify Owner Objectives
  • Step 2: Quantify Business and Personal Resources
  • Step 3: Maximize and Protect Business Value
  • Step 4: Prepare for Ownership Transfers to Third Parties
  • Step 5: Prepare for Ownership Transfers to Insiders
  • Step 6: Manage Business Continuity
  • Step 7: Support Personal Wealth and Estate Planning

Business Planning

Business planning can refer to the overall plan of how you run and operate your business. This is commonly a strategy most business owners use throughout the lifecycle of their business, from the very start to the day they consider selling the company. Your business plan is a living and growing document. It is often going to be focused on how your business will approach and succeed in its chosen market. It probably looks at how you’ll be profitable in your chosen lines of products and services. It may be reviewed regularly to be sure you are meeting your company goals. Having a solid business plan can play a role in your succession and your exit. The more detailed the business plan you have in place, the easier it may be to advance a succession and exit.

Conclusion

A well-run company always has a plan in place. The planning processes never ends. Your business plan can help ensure the success of the business in its entirety and can eventually provide support for your future plans, including succession and Exit Plans.

We strive to help business owners identify and prioritize their objectives with respect to their business, their employees, and their family. 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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notification.

While there are many uncertainties when planning for the future, one factor that is almost always essential to the success of your future plans is cash flow. Measuring your company’s cash flow and knowing what aspects of your business can be affected by the health of your cash flow are even more crucial in today’s economy. Having an accurate representation of your cash flow can also make or break your plans for the future, including any ideas you might have about backing away, transitioning ownership, delegating management responsibility, or an outright sale of your business. Since you can’t escape the impact of cash flow, you might as well take it head on, right?

What is Cash Flow

While there are many ways to think about cash flow, the concept that might work for business planning purposes is free cash flow. Free cash flow is the portion of the annual net cash flow from operating activities that remains available for discretionary purposes after the business has met its basic financial obligations. In this discussion, the “discretionary purpose” could be any anticipated use of cash flow to support the business or personal goals and objectives of the owners of a closely-held business. So, free cash flow might be supporting new initiatives, return on investment for current or new owners, cash-based incentive compensation plans, or the buy-out of one or more owners. In other words, cash flow can be described as the engine that powers your plans for the future.

Importance of Cash Flow

Cash flow is so essential because it impacts just about every aspect of your current and future business operations and planning. Cash flow can affect the value of your business, the magnitude of risk associated with the business, and the business’ ability to manage debt or fund growth.

As much as we don’t want to admit it, cash flow is the lifeblood of a company. Owners must understand —and be able to measure —where cash comes from and where it goes. It is an accurate indicator of the financial health of your business. Unlike more subjective measures, it makes no assumptions and entertains no preconceptions.

3 Ways to Reboot Your Cash Flow Strategy

  1. Assess Billing and Collections Practices – It may be time to do a complete review and overhaul of your customer relationships, invoicing practices, collections policies, discount policies, and credit policies for your customers. You may find that your cash flow pipeline has many small leaks that, once plugged, can impact the stability and predictability of your cash flow.
  2. Rethink Spending and Financing – Right now businesses are revisiting business priorities and expenses in ways that they did not anticipate as recently as last year. Changing from owning to leasing equipment and facilities, renegotiating pricing or terms with suppliers, and taking advantage of widespread changes in the way businesses operate and interact can lead to big savings. You may have leverage or bargaining power that you haven’t had in the past.
  3. Put It in Writing – Ultimately, we are talking about free cash flow because good business planning requires a constant eye toward the future and what you want it to look like. Thinking through your priorities for the future, and how they may have changed, can allow you to rebalance your use of free cash flow to best suit your goals as they stand today. Business planning shouldn’t be a static process in which you set your course and then just assume you’ll arrive at your destination. Frequent course corrections are often necessary to finally reach your targets. A short, written, prioritized list of your priorities and how you’ll use your current and future cash flow to support them, is a tangible way to visualize your plans for the future.

Keeping Your Eye on the Ball

You may be putting out fires and managing unexpected crises more frequently now than in the past. But you also know how important it is to look to the future and make decisions that you believe will help achieve your long-term goals. It’s possible to do both.

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. Exit Planning 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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

For professional use only. All information can be subject to change without notification.

View Desktop Site