From manager to CFO, the privately-held business owner understands that the buck stops with them. Now, despite the number of hats one wares, the responsibilities technically falls under the role of the ‘employee’ of the business, share holder or Chairman of the Board of Directors. Each role plays its own unique part during the transition out of your business.
An advantage to the many roles is how these different roles are compensated during the sales process. Most owners envision getting paid for their stock ownership when they sell the business, turning over the company to someone else. In this case that owner is receiving their ‘exit proceeds’ as ‘owner dollars’. However, in many business sales, there are deferred and contingent payments. These are payments that are not received at the closing but arrive at a later point in time. It is helpful to know that these exit proceeds can also be received by you as ‘employee dollars’. These ‘employee dollars’ may include continued compensation (perhaps for an extended ‘retirement’ period) as well as pension income, continued perquisites for reliable service to the company, continued health benefits, as well as bonuses and profit-sharing.
In fact, if you are considering an ‘internal’ transfer of your company to managers or family members, it is helpful to know that these various ways of receiving income opens the door for a lot of creativity into how you structure the total amount of money that you get out of the company. In this regard, it is also helpful to know that ‘employee dollars’ are often much more tax efficient than dollars that are received as ‘owner dollars’ (this is primarily because ‘owner dollars’ are [generally] not tax deductible).
As mentioned, you wear many hats in the day-to-day running of your business. Experience shows that owners who recognize the different roles that they play and how these roles impact their exit transaction as well as their exit proceeds are better prepared to navigate the complexity that is inherent in all of these transactions. A solid understanding of these roles along with a little bit of creativity can lead to a higher probability of a successful exit transaction for you and your business.
Pinnacle Equity Solutions © 2013